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UBC Theses and Dissertations

Marketing strategy and its effect on retail site : a case study of the Vancouver gasoline market Rothwell, David Colin 1970

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MARKETING STRATEGY AND ITS E F F E C T ON R E T A I L SITE: A CASE STUDY OF THE V A N C O U V E R GASOLINE M A R K E T by DAVID COLIN R O T H W E L L B. A . University of Winnipeg, 1969 A THESIS SUBMITTED IN P A R T I A L F U L F I L M E N T OF THE REQUIREMENTS FOR T H E D E G R E E OF M A S T E R OF ARTS in the Department o f Geography We accept this thesis as conforming to the required standard Dr . Walter G . Hardwick Dr . R. James Claus T H E UNIVERSITY OF BRITISH COLUMBIA September, 1970 In presenting th i s thes is in pa r t i a l fu l f i lment of the requirements for an advanced degree at the Un ivers i ty of B r i t i s h Columbia, I agree that the L ibrary sha l l make it f r ee l y ava i l ab le for reference and study. I fur ther agree that permission for extensive copying o f th is thes is for scho la r l y purposes may be granted by the Head of my Department or by his representat ives . It is understood that copying or pub l i ca t ion o f th is thes is fo r f inanc ia l gain sha l l not be allowed without my wr i t ten permission. Depa rtment The Univers i ty of B r i t i s h Columbia Vancouver 8, Canada A B S T R A C T The thesis examines one aspect of u r b a n s t r u c t u r e -- n a m e l y the quality of r e t a i l s i t e . The s p e c i f i c r e s e a r c h hypothesis is that d i f f e r e n t m a r k e t i n g s t r a t e g i e s can cause d i f f e r e n c e s i n site quality. The gasoline s e r v i c e station i n d u s t r y of Vancouver^ B r i t i s h C o l u m b i a was chosen as a case study f o r purposes of testing the hypothesis. F r o m the m a r k e t i n g l i t e r a t u r e i t was shown that there exists two d i s t i n c t s t r a t e g i e s f o r m a r k e t i n g gasoline: n o n - p r i c e competition as p r a c t i c e d by the m a j o r o i l companies and p r i c e competition as p r a c t i c e d by the s m a l l independents. A quality r a t i n g schedule, u s i n g both v a r i a b l e s i n t e r n a l to the site i t s e l f ( m i c r o v a r i a b l e s ) and v a r i a b l e s based on the s u r r o u n d i n g s o c i o - e c o n o m i c environment ( m a c r o va r i a b l e s was d e v i s e d as a s u r r o g a t e m e a s u r e of site quality. Gallonage p e r f o r m a n c e of a station was used as a d i r e c t m e a s u r e of site quality. F o r a sample of m a j o r company stations the c o r r e l a t i o n s between site r a t i n g s c o r e s and gallonage were v e r y high. The quality r a t i n g schedule a l s o p o s s e s s e d high p r e d i c t i v e a b i l i t y f o r gallonage. It was demonstrated that stations of high quality (in t e r m s of the site r a ting s c o r e ) pump the most gaso l i n e . In contrast, c o r r e l a t i o n s between the site r a t i n g s c o r e s and gallonage f o r the population of p r i c e - c u t t e r s was v e r y low. Since the average independent station pumps twice as much gasoline as the average m a j o r station, i t was apparent that the site r a t ing i n s t r u m e n t was not a good s u r r o g a t e m e a s u r e of quality f o r the p r i c e - c u t t e r stations. It i s concluded that explanation f o r this d i s c r e p a n c y i n gallonage and site s c o r e s is attributable to the di f f e r e n c e s i n m a r k e t i n g strat e g y . Q u a l i t y r e q u i r e m e n t s f o r s u c c e s s f u l company s e r v i c e stations a r e dif f e r e n t f r o m the quality r e q u i r e m e n t s of s u c c e s s f u l p r i c e - c u t t e r s t a t i o n s . T h i s fact i s important to both i n d u s t r i a l and urb a n p l a n n e r s . F o r example, i n V a n c o u v e r the C i t y C o u n c i l e mbarked on an e x p l i c i t plan of reducing the number of s e r v i c e stations. However^ its actions were made without a f u l l u nderstanding of the d i f f e r e n t c o r p o r a t e s t r a t e g i e s and have prevented what was an a l r e a d y d e c l i n i n g population of stations. i i i T A B L E OF CONTENTS Chapter Page 1 R E T A I L SITE QUALITY: A N INTRODUCTION 1 Research Hypothesis 2 Method of Approach 3 Outline 4 2 SITE AND CITY STRUCTURE 5 Quality 9 Type 13 Network 19 Quality Rating of Service Station Sites 21 3 THE FIRM AND FIRM S T R A T E G Y 28 Nature of the Modern F i r m 28 Behavioral Variables in Decision-Making 34 Character 35 Structure 36 Strategy 37 Marketing Strategy 44 Strategy of innovation 46 Strategy of efficiency 47 Strategy of price 51 Strategy of competitive difference 53 Strategy of market segmentation 54 Summary 56 Nature of Marketing Strategy for Oil Companies 57 Non-price strategy 62 Price strategy 65 Summary . 68 Conclusion 68 Chapter Page 4 METHOD OF ANALYSIS AND RESULTS 69 Nature of the Vancouver Gasoline Market 69 Summary 78 Outline of Analysis 79 Sampling Procedures 80 Marketing Strategies 84 Development and Application of Site Rating Instrument 89 Data Collection 92 Statistical Procedures 94 Description of Data 98 Internal Consistency of Site Rating Schedule 108 Item Validity 109 Three Stage Correlational Analysis 111 Stage 1: major company stations 111 Stage 2: independent stations 115 Stage 3: all stations 119 Least Square Analysis 119 Parametric Correlation Analysis 123 A Small Case Study 127 5 CONCLUSIONS AND IMPLICATIONS 131 BIBLIOGRAPHY 138 APPENDIX A - Original Data Tables 147 v L I S T O F T A B L E S T a b l e Page 1 G a s o l i n e r e t a i l f i r m s i n V a n c o u v e r m a r k e t 76 2 N o n - p r i c e competitors (1970) 76 3 P r i c e competitors (1970) 77 4 Mean^ median, and range of gallonages f o r m a j o r and independent stations i n the V a n c o u v e r study, ( g a l . / y r . ) 83 5 C o m p a r i s o n of B r i c k ' s schedule and reweighted schedule 92 Spearman rank c o r r e l a t i o n s between independently rated m i c r o , m a c r o , and total s c o r e s f o r a l l stations 94 Va l u e s of Z } a s s o c i a t e d p r o b a b i l i t y , and r e j e c t i o n of H Q f o r rank sum test a p p l i e d to m i c r o , m a c r o , to t a l , and gallonage data 107 Spearman c o r r e l a t i o n s of the eleven site r a ting v a r i a b l e s with the three site r a t i n g s c o r e s f o r a l l s t a t i o n s . (N = 43) - 110 9 Spearman c o r r e l a t i o n s of the eleven site r a t i n g v a r i a b l e s with the three site r a t i n g s c o r e s f o r m a j o r stations. (N = 23) 112 10 Spearman c o r r e l a t i o n s of the eleven site r a t i n g v a r i a b l e s with the three site r a t i n g s c o r e s f o r independent stations. (N = 20) 113 T a b l e 1 1 S p e a r m a n c o r r e l a t i o n s f o r m i c r o , m a c r o , a n d t o t a l s i t e r a t i n g s c o r e s a g a i n s t g a l l o n a g e 1 1 4 1 2 S t a n d a r d e r r o r o f e s t i m a t e f r o m l e a s t s q u a r e s a n a l y s i s 1 2 2 1 3 P e a r s o n c o r r e l a t i o n s o f t h e e l e v e n s i t e r a t i n g v a r i a b l e s w i t h t h e t h r e e s i t e r a t i n g s c o r e s f o r m a j o r c o m p a n i e s . ( N = 2 3 ) ' 1 2 4 1 4 P e a r s o n c o r r e l a t i o n s o f t h e e l e v e n s i t e r a t i n g v a r i a b l e s w i t h t h e t h r e e s i t e r a t i n g s c o r e s f o r p r i c e - c u t t e r s . ( N = 2 0 ) 1 2 5 1 5 P e a r s o n c o r r e l a t i o n s o f t h e e l e v e n s i t e r a t i n g v a r i a b l e s w i t h t h e t h r e e s i t e r a t i n g s c o r e s f o r a l l s t a t i o n s . ( N = 4 3 ) 1 2 6 1 6 P e a r s o n c o r r e l a t i o n s b e t w e e n s i t e r a t i n g s c o r e s a n d g a l l o n a g e 1 2 7 1 7 G a l l o n a g e a n d s i t e r a t i n g d a t a f o r t h r e e s t a t i o n s i n t h e c a s e s t u d y . 1 2 9 L I S T O F F I G U R E S F i g u r e Page 1 The s t r u c t u r e of i n t r a - u r b a n business and c o m m e r c e 15 2 I l l u s t r a t i o n of B r i c k ' s site r a ting schedule 23 3 I l l u s t r a t i o n of C l a u s ' site r a t i n g schedule 25 4 I l l u s t r a t i o n of K e l l e y ' s site r a t i n g schedule 26 5 1967 consumer s u r v e y a s k i n g the question, "What brand of gasoline do you u s u a l l y buy? " 72 6 T h r e e stage m o d e l of c o r r e l a t i o n a l a n a l y s i s 81 7 Independent and m a j o r company s e r v i c e station expenses 88 8 P e r f o r m a n c e r a t i n g guide: s e r v i c e station and s e r v i c e station site 91 9 H i s t o g r a m of y e a r l y gallonages f o r a l l stations 99 10 Site rating s c o r e s for m a j o r and independent stations 101' 11 H y p o t h e t i c a l l e a s t squares li n e s 117 12 Scatter plot of both m a j o r and independent stations with t h e i r r e s p e c t i v e l e a s t squares lines based 1 on m i c r o s c o r e s 118 13 Scatter plot and l e a s t squares lines f o r both m a j o r and independent stations based on total s c o r e s 121 14 R e l a t i v e s t r e e t l o c a t i o n of three stations i n s m a l l case study 128 A C K N O W L E D G E M E N T S T would l i k e to thank the many i n d i v i d u a l s i n the p e t r o l e u m i n d u s t r y who helped me throughout this study. I am e s p e c i a l l y g r a t e f u l to M r . C l i f f L . Goddard, M r . D r ake B. M c R ae, M r . J . C. M c l n t y r e , and M r . Ray P o c h m a r a . M y s i n c e r e a p p r e c i a t i o n goes to D r . W a l t e r G. H a r d w i c k f o r his continued i n t e r e s t i n my work. D r . Hardwick's t i m e l y suggestions and good advice have added c o n s i d e r a b l y to my t h e s i s . A s p e c i a l thanks must be given to D r . R. J . C l a u s without who' help this thesis would not have been completed. D r . C l a u s was not only a constant s o u r c e of i n f o r m a t i o n and d i r e c t i o n but he a l s o continually gave of his time and r e s o u r c e s to help i n the development of the p r e s e n t study. ' • T h i s s t u d y h a s b e e n f i n a n c e d i n p a r t b y C e n t r a l " r . M o r t g a g e a n d H o u s i n g C o r p o r a t i o n . C H A P T E R 1 R E T A I L , S I T E Q U A L I T Y : A N I N T R O D U C T I O N The urban environment i s an i n t e r e s t i n g and c o m p e l l i n g f i e l d of study. T o date, much of the r e s e a r c h done by u r b a n geographers has been l a r g e l y t h e o r e t i c a l ; devoid of r e a l w o r l d conditions upon which to base p r i v a t e and public d e c i s i o n s . In this thesis it is argued that a m o r e complete understanding of u r b a n s t r u c t u r e can be a c h i e v e d i f an under-standing and an a p p r e c i a t i o n of the i n d i v i d u a l sites that make up the u r b a n m o s a i c is f i r s t attained. It would appear more p r o f i t a b l e to s t a r t at the lowest common denominator, s i t e , than to begin with an aggregated pattern of land use. A " s i t e " is here defined as a fu n c t i o n a l unit of u r b a n space. The a i m of this thesis is to examine one s p e c i f i c a spect of u r b a n s t r u c t u r e -- namely the quality of r e t a i l s i t e . The study of site is a broad and complex topi c . The l i t e r a t u r e has dealt with site under three c a t e g o r i e s : quality, type^ and network. The quality aspects of site a r e most evident i n the r e t a i l i n g segment of the u r b a n environment, for it is quality which determines the u l t i m a t e p e r f o r m a n c e of any r e t a i l e stablishment. R e t a i l sites of p o o r quality do not command high sales volumes nor are they l i k e l y to m a i n t a i n themselves 2 in the market place for a long period of time. Although type and network of site are as important as quality in forming the urban landscape, they w i l l not be dealt with at length in this thesis. The approach taken here is i n contrast to most work done in urban economic geography. A great many geographers have looked at broad urban patterns derived from highly aggregated s o c i a l and economic data to gain some understanding of the city; for example Burgess (1925). Others^ lik e B e r r y (1963) who study r e t a i l location, i n d u s t r i a l location ^  or s p a t i a l theory have used the patterns created by various forms of land use as their basic data. A s t i l l s m a l l e r group, for example Applebaum and Cohen (1961), have concentrated their efforts on individual r e t a i l sites and use as their basic data the attributes of the site i t s e l f as w e l l as other pertinent s o c i o -economic information. The present thesis approximates the last approach more cl o s e l y than the former two ; but deals i n greater depth with the actual site attributes. Research Hypothesis F o r the most part, the quality of r e t a i l site is determined by the entrepreneur who selects ^  builds ^  or creates the site for a p a r t i c u l a r function. Claus (1969) i n a study on the dynamics of gasoline s e r v i c e stations in C a l i f o r n i a ^ demonstrated that the most capable entrepreneurs are able to select the highest quality of r e t a i l s i t e s . In Claus' study, differences i n marketing strategy did not enter as an intervening variable in the r e s e a r c h design, and were therefore not considered i n the analysis of site quality. This was accomplished by having a sample of stations 3 which u t i l i z e d a single m a r k e t i n g stra t e g y . In an endeavor to f u r t h e r the understanding of r e t a i l site quality this thesis p r o p o s e s the r e s e a r c h hypothesis that d i f f e r e n t m a r k e t i n g s t r a t e g i e s can cause d i f f e r e n c e s i n site quality. Method of A p p r o a c h The gasoline s e r v i c e station i n d u s t r y of V a n c o u v e r has been chosen as a case study f o r purposes of testing the r e s e a r c h hypothesis. V a n c o u v e r r e p r e s e n t s an a r e a of 44 square m i l e s and a population of 410,000. Its land a r e a is a l m o s t f u l l y developed and, as such, the c i t y exhibits a f a i r l y stable urban environment. V a n c o u v e r has e x p e r i e n c e d a long and v a r i e d h i s t o r y of o i l i n d u s t r y p a r t i c i p a t i o n ; i n fact, i t was h e r e i n 1907 on Smythe Street that the f i r s t gasoline s e r v i c e station i n the w o r l d was e r e c t e d ( I m p e r i a l O i l , 1967, p. I). 1 F r o m the m a r k e t i n g l i t e r a t u r e i t has been demonstrated that the N o r t h A m e r i c a n o i l i n d u s t r y has developed two d i s t i n c t s t r a t e g i e s f o r m a r k e t i n g g a s o l i n e . These a r e n o n - p r i c e competition as p r a c t i c e d by the m a j o r o i l companies and p r i c e competition as employed by s m a l l indepen-dents. The different m a r k e t i n g s t r a t e g i e s demand dif f e r e n t qualities of r e t a i l s i t e . F o r example, because independent d e a l e r s use p r i c e i n s t e a d of convenience and s e r v i c e as a means of a t t r a c t i n g a c e r t a i n segment of the m a r k e t , they do not need to p r o v i d e the f a c i l i t i e s and l o c a t i o n that the ^The f i r s t gasoline station i n the U n i t e d States was a l s o e r e c t e d in 1907 in St. L o u i s ( C a s s a d y & Jones, 1951 ^ p. 87). m a j o r c o m p a n i e s o f f e r . T h e g o o d n e s s o f f a c i l i t i e s a n d l o c a t i o n i s r e g a r d e d a s s u r r o g a t e m e a s u r e s o f s i t e q u a l i t y . T o t e s t t h e h y p o t h e s i s a s a m p l e o f m a j o r c o m p a n y s t a t i o n s a n d t h e p o p u l a t i o n o f i n d e p e n d e n t o u t l e t s w e r e s e l e c t e d f o r t h e e x p e r i m e n t . A q u a l i t y r a t i n g s c h e d u l e w a s d e v i s e d a n d t h e s c o r e s o b t a i n e d f r o m i t w e r e c o r r e l a t e d a g a i n s t s t a t i o n g a l l o n a g e . G a l l o n a g e p e r f o r m a n c e o f a s t a t i o n i s r e g a r d e d a s t h e b e s t d i r e c t m e a s u r e o f s i t e q u a l i t y . T h e r e s u l t s r e v e a l e d a s t r o n g p o s i t i v e c o r r e l a t i o n b e t w e e n m a j o r c o m p a n y r a t i n g s c o r e s a n d g a l l o n a g e . T h i s e s t a b l i s h e d t h e f a c t t h a t t h e q u a l i t y r a t i n g s c h e d u l e i s c a p a b l e o f g o o d g a l l o n a g e p r e d i c t i o n . W h e n t h e t e s t s w e r e a p p l i e d t o t h e p r i c e - c u t t e r s c o r r e l a t i o n s b e t w e e n t h e r a t i n g s c o r e s a n d g a l l o n a g e w e r e , v e r y l o w . T h e c o n c l u s i o n r e a c h e d w a s t h a t t h e q u a l i t y r e q u i r e m e n t s f o r p r i c e - c u t t e r s t a t i o n s a r e d i f f e r e n t f r o m t h e q u a l i t y r e q u i r e m e n t s f o r m a j o r c o m p a n y s t a t i o n s . O u t l i n e A r e v i e w o f t h e p e r t i n e n t l i t e r a t u r e o n s i t e a n d c i t y s t r u c t u r e i s p r e s e n t e d i n C h a p t e r 2 . C h a p t e r 3 d i s c u s s e s a t l e n g t h t h e v a r i o u s a s p e c t s o f c o r p o r a t e s t r a t e g y a s w e l l a s s o m e o f t h e i r i m p l i c a t i o n s . T h e a c t u a l e x p e r i m e n t a n d r e s u l t s o f t h e V a n c o u v e r c a s e s t u d y a r e p r e s e n t e d i n C h a p t e r 4 . C h a p t e r 5. s u m s u p t h e c a s e s t u d y a n d d r a w s s o m e i n t e r e s t i n g c o n c l u s i o n s a b o u t t h e o i l i n d u s t r y a n d t h e C i t y o f V a n c o u v e r . C H A P T E R 2 S I T E A N D C I T Y S T R U C T U R E I t s e e m s o n l y r e a s o n a b l e t h a t i n o r d e r t o f u l l y u n d e r s t a n d t h e s t r u c t u r e o f t h e u r b a n e n v i r o n m e n t , o n e m u s t f i r s t u n d e r s t a n d t h e o p e r a t i n g u n i t s t h a t m a k e u p t h e s t r u c t u r e . I n t h i s t h e s i s t h e s m a l l e s t c o m p o n e n t s o r s m a l l e s t f u n c t i o n a l u n i t s o f s p a c e i n a c i t y a r e d e s i g n a t e d a s s i t e s . T h i s a p p r o a c h t o u r b a n a n a l y s i s h a s n o t b e e n w i d e l y u s e d i n t h e p a s t a l t h o u g h t h e p r i n c i p l e s o n w h i c h i t i s b a s e d h a v e a l l b e e n m e n t i o n e d i n t h e g e o g r a p h i c l i t e r a t u r e a t o n e t i m e o r a n o t h e r . F o r t h e m o s t p a r t ^ g e o g r a p h e r s h a v e t e n d e d t o a g g r e g a t e t h e i r d a t a r a t h e r t h a n s t u d y t h e c o m m o n c h a r a c t e r i s t i c s o f s m a l l e r s p a t i a l u n i t s . T h e p o p u l a r m e t h o d o f r e s e a r c h o n u r b a n s t r u c t u r e h a s b e e n t o d i s c o v e r s o m e s p a t i a l o r g a n i z a t i o n a m o n g g e n e r a l i z e d f o r m s o f l a n d u s e . L i t t l e e n e r g y h a s b e e n s p e n t o n t h e a n a l y s i s o f i n d i v i d u a l s i t e s t h e m s e l v e s , e v e n t h o u g h t h e t e r m a n d c o n c e p t o f s i t e i s w e l l k n o w n t o g e o g r a p h e r s . T h e c o n c e p t o f ' s i t e " h a s b e e n a c e n t r a l e l e m e n t i n A m e r i c a n u r b a n g e o g r a p h y f o r s e v e r a l d e c a d e s . T h e g e n e s i s o f t h i s c o n c e p t i n the f i e l d of geography can be traced back to the F r e n c h geographer, Blanchard (1922) who distinguished between the general elements of situation and the sp e c i f i c c h a r a c t e r i s t i c s of s i t e . To him, site factors were "purely l o c a l t r a i t s of the landscape" ( B e r r y & Horton, 1970, p. 15). Another F r e n c h geographer, Max Sorre (1952), expanded upon Blanchard's basic ideas but was mainly concerned with the influence of situation i n the urban context. Site, he believed, r e f e r r e d only to the natural morphological landscape. His scale of discussion on site related to the city area as a whole. Following c l o s e l y on this theme, Dickinson (1959) stated that, ". . . site embraces the precise features of the t e r r a i n on which the settlement began and over which it spread" (p. 12). Im p l i c i t in the e a r l y writings on site i s the idea that " s i t u a t i o n " somehow involves the human element while " s i t e " is relegated to a purely p h y s i c a l context. A l s o contained in these works i s the bias of treating site only on a city or settlement wide scale. Broek (1965), however, says that both site and situation are very broad concepts and can be applicable at many scales of ac t i v i t y . His definition of site is somewhat less r e s t r i c t i v e than previous ones: "Site . . . means the location of a given place with its l o c a l i n t e r n a l features or r e s o u r c e s " (p. 30). The term " s i t e " is commonly used i n contemporary geographic l i t e r a t u r e when r e f e r r i n g to land areas of much s m a l l e r size than a ci t y . This is e s p e c i a l l y true in studies dealing with urban land economics and r e t a i l location (see B e r r y , 1963; Alonso, 1964; Murphy, 1966; Huff, 1966; Garner, 1967; B e r r y & Horton, 1970). Here the scale of " s i t e " is usually 7 red u c e d to the s i z e of a building lot or to the building i t s e l f . In fact, G a r n e r (1967) is quite emphatic that site not only contains such f a c t o r s as shape, s i z e , topography and geology, s e w e r s , l i g h t i n g , e t c . , but a l s o includes the " c a p i t a l committed i n the f o r m of buildings"(pp. 100-101). In d i s c u s s i o n s on the p r o b l e m s of s e l e c t i n g the p r o p e r r e t a i l s i t e , most geographers tr e a t the building as i n t r i n s i c to the site i t s e l f (see Proudfoot, 1938; Canoye r , 1946; K e l l e y , 1955; Nelson,1958; Applebaum, 1968). In other words, site has come to r e p r e s e n t not only a plot of land of s p e c i f i c s i z e but a l s o the buildings or s t r u c t u r e s e r e c t e d upon that land. T h i s r e i n t e r p r e t a t i o n of the concept of site v a r i e s only s l i g h t l y f r o m that o r i g i n a l l y p r o p o s e d by B l a n c h a r d (1922). Although site has been extended to c o v e r not only the n a t u r a l m o r p h o l o g i c a l landscape but a l s o the humanly c o n s t r u c t e d landscape, the t e r m s t i l l r e tains its o r i g i n a l meaning of r e f e r r i n g to s p e c i f i c a l l y p h y s i c a l a t t r i b u t e s . A l o n g with t h i s ^ the s c a l e of the t e r m site has a l s o been reduc e d somewhat. A c c e p t a n c e of the common usage of the t e r m site demands the r e a l i z a t i o n that "a c i t y . . . i s div i d e d into many p a r c e l s of land, each of which may be c a l l e d a 'site. ' M o s t of these sites have s t r u c t u r a l i m p r o v e m e n t s designed for some p a r t i c u l a r u s e " ( Lowry, 1970, p. 499)» Site can th e r e f o r e be thought of as the b a s i c building block i n the ur b a n f a b r i c . It i s the ar r a n g e m e n t or s p a t i a l pattern of these b a s i c building blocks that is c a l l e d the s t r u c t u r e of the c i t y . Since no site i s eve r i s o l a t e d f r o m a l l other s i t e s , the type of linkage between sites is 8 c r i t i c a l . I t i s o f t e n t h e s e e x t e r n a l l i n k a g e s b e t w e e n s i t e s , i . e . t r a n s p o r t a t i o n a n d c o m m u n i c a t i o n , t h a t d e t e r m i n e t h e a l i g n m e n t a n d p o s i t i o n i n g o f t h e v a r i o u s s i t e s t h e m s e l v e s ( R a n n e l l s , 1956). L i n k a g e h e r e i s d e f i n e d a s , " a r e l a t i o n s h i p b e t w e e n e s t a b l i s h m e n t s c h a r a c t e r i z e d b y r e c u r r e n t i n t e r a c t i o n w h i c h r e q u i r e m o v e m e n t o f p e r s o n s o r o f g o o d s o r t h e e x c h a n g e o f i n f o r m a t i o n " ( R a n n e l l s , 1956, p . 19). N e l s o n (1969) s u g g e s t s t h a t " u r b a n t r a n s p o r t a t i o n ( a l s o c o m m u n i c a t i o n ) n o t o n l y l a c e s t h e u r b a n s t r u c t u r e t o g e t h e r , b u t i t a l s o p r o f o u n d l y a f f e c t s t h e a r r a n g e m e n t a n d f u n c t i o n o f e l e m e n t s i n t h e s t r u c t u r e o f t h e c i t y " ( p . 2 0 0 ) . I t i s t h e s h a p e o r t h e t h r e e - d i m e n s i o n a l m a n i f e s t a t i o n o f t h e s i t e i t s e l f w h i c h i s c a l l e d t h e f o r m o f t h e c i t y . T h i s i s u s u a l l y c o n v e y e d b y t h e s i z e , s t y l e , a n d a r c h i t e c t u r e o f t h e b u i l d i n g s a n d l o t s w h i c h m a k e u p i n d i v i d u a l s i t e s . O n e e x a m p l e o f s i t e s h a v i n g e s s e n t i a l l y t h e s a m e f u n c t i o n ( h o u s i n g ) b u t r a d i c a l l y d i f f e r e n t f o r m i s t h e s i n g l e f a m i l y d w e l l i n g a n d t h e h i g h r i s e a p a r t m e n t b u i l d i n g . T h e d i f f e r e n c e i n f o r m h e r e i s q u i t e o b v i o u s , b u t s o m e t i m e s t h e m o s t i n t e r e s t i n g d i f f e r e n c e s i n f o r m a r e t h e m o s t s u b t l e i n n a t u r e . A l t h o u g h g e o g r a p h e r s a r e a w a r e o f t h e b a s i c i n t e r d e p e n d e n c e b e t w e e n f o r m a n d s t r u c t u r e t l i t t l e w o r k h a s b e e n d o n e i n t h e w a y o f u n d e r s t a n d i n g t h e i r e x a c t r e l a t i o n s h i p . T h e p r o c e s s e s i n v o l v e d i n a l t e r i n g o r c r e a t i n g b o t h a s p e c t s o f t h e e n v i r o n m e n t c a n b e v e r y c o m p l e x . S t r u c t u r e w h e n s e t b y t h e c i t y c a n i n f a c t d e t e r m i n e f o r m . F o r e x a m p l e , t h e h i g h r i s e d e v e l o p m e n t o f a p a r t m e n t s o n t h e G o l d e n C r e s c e n t i n V a n c o u v e r i s a r e s u l t o f a c o n s c i o u s c i t y p o l i c y t o r e s t r i c t h e a v y d e n s i t y zoning to one a r e a . T h i s can be con t r a s t e d to the San F r a n c i s c o waterfront where building heights were l i m i t e d by zoning r e g u l a t i o n s . M u n i c i p a l and f i r e codes, as w e l l as mortgage a r r a n g e m e n t s , a l s o play a part i n de t e r m i n i n g c i t y f o r m and s t r u c t u r e . E v e n though e v e r y site is unique, some commonality must be es t a b l i s h e d among sites before m eaningful r e s e a r c h can p r o c e e d . Ind i v i d u a l sites have u s u a l l y been examined under three c a t e g o r i e s : quality, type, and network of s i t e . Q u a l i t y One of the most obvious and most important features about site i s quality. T h i s i s e s p e c i a l l y true f o r r e t a i l s i t es because it is site q u a l ity that d e t e r m i n e s the ultimate p e r f o r m a n c e of any r e t a i l e s t a b l i s h -ment. P e r f o r m a n c e here is m e a s u r e d i n t e r m s of volume s a l e s and viable e c onomic l i f e of the s i t e . In fact, i t i s site quality that often d e t e r m i n e s the l i f e and death of a business e n t e r p r i s e . Sites p e r f o r m i n g the same function and main t a i n i n g the same th r e s h o l d , both i n s i z e and kind, a r e u n l i k e l y to do the same volume of busi n e s s . T h i s is because of qualitative d i f f e r e n c e s between s i t e s . A p p l e b aum (1968) i l l u s t r a t e s this point of view by saying that: Where di f f e r e n t f i r m s offer a s i m i l a r choice of goods } p r i c e s , and s e r v i c e s -- as is t y p i c a l l y the case with s u p e r m a r k e t s --and where two or more f i r m s compete i n a p p r o x i m a t e l y s i m i l a r l o c a t i o n s for the same sou r c e of trad e , the s t o r e s that o f f e r the best r e t a i l i n g f a c i l i t i e s can expect to ou t p e r f o r m t h e i r i n f e r i o r c o m p e t i t o r s (p. 49). 10 Although geographic l i t e r a t u r e on the topic of r e t a i l site quality i s sparce, most w r i t e r s who deal with store location make frequent mention of the importance of having superior f a c i l i t i e s . Nelson (1958), for example, believes that "location is not the only factor determining the success of the operation or the business volume"(p. 141). A great many other factors such as p h y s i c a l comfort, convenience, reputation, character of s e r v i c e , attractiveness, etc. are of equal importance i n the performance of a s i t e . Martineau (1958a) says that "regardless of a b i l i t y to pay, a l l shoppers seek stores whose total image is acceptable and appealing to them i n d i v i d u a l l y " (p. 49). If this is true, then shoppers must recognize some qualitative difference between r e t a i l outlets. Huff (1966) a major proponent of the use of gr a v i t y models i n approximating optimum r e t a i l locations, has pointed out that such a normative approach is insufficient because i t f a i l s to consider the qualitative aspects of r e t a i l s i t e . . . . the model does not consider important questions pertaining to the site at a potential location. It is obvious that there are a number of important factors related to the site i t s e l f that can influence the volume of sales that can be expected from a given location. V i s i b i l i t y and a c c e s s i b i l i t y , as w e l l as the nature and condition of adjacent property, have a bearing on the sales that can be expected. Therefore, it is important that supplemental techniques for appraising the site be used i n conjunction with the general sales estimate afforded by the model. Generally such techniques are of a qualitative character and thus, again, human judgement plays an important role in a r r i v i n g at an adjusted sales estimate (pp. 302-303). Other references to site quality in geography can be found i n Murphy (1966, p. 361) when he talks about the quality rating of manufacturing 11 s i t e s . P r e d (1967, 1969) also makes use of the concept of site quality in his formulation of the "behavioral matrix. " A c c o r d i n g to P r e d , locational actors who possess the most information and have the best a b i l i t y to act on that information w i l l choose the best quality of site for a s p e c i f i c economic a c t i v i t y . G arner (1966) i n his discussion on "Rent and Site U t i l i t y " points out that although relative location of a site within the city is a prime consideration, ". . . more important, however, from the r e t a i l i n g point of view, is the 'physical quality 1 of the s i t e " (p. 100). He says that site productivity i s subject to " i n t e r n a l site v a r i a t i o n s " (p. 101). The topic of i n t e r n a l v a r i a t i o n w i l l be examined at a lat e r point. The ideas proposed by Garner come from his r e a l i z a t i o n that both consumer behavior (Engel, et a l 1968) and the behavior of the entrepreneur (Pred, 1967) are more complex than the postulates of c e n t r a l place imply. Consumer behavior i s of p a r t i c u l a r importance i n r e t a i l i n g because consumers can be linked to p a r t i c u l a r establishments for the purchase of a given good according to their preference and position i n the various strata of the urban market (Garner, 1966, pp. 115-116), Garner also claims that: Establishments are not exactly s i m i l a r but are differentiated from each other in many subtle ways. Qualitative differences whether r e a l or fancied i n the eyes of the consumer, a r i s e from a combination of (a) differences i n the product sol d , and (b) differences in the condition surrounding the sale (p. 116). 1 2 A c c o r d i n g to G a r n e r qualitative d i f f e r e n c e s in r e t a i l site are e videnced v i a such attributes as the g e n e r a l tone of the s t o r e , p e r s o n a l s e r v i c e , reputation, p h y s i c a l f a c i l i t i e s a v a i l a b l e , p e r s o n a l a t t r a c t i o n of the s u r r o u n d i n g s , convenience, etc. (p. 117). M o s t w r i t e r s would seem to conclude that the best p e r f o r m a n c e in the m a r k e t place i s a c c o m p l i s h e d by sites of highest quality. Site quality could then be defined as the a b i l i t y of a r e t a i l site to p e r f o r m the  function for which it was designed, m e a s u r e d i n t e r m s of f a c i l i t i e s and  layout of the site i t s e l f (Claus & Rothwell, 1970, p. 86). M ost obviously, the d i f f i c u l t y with e m p i r i c a l r e s e a r c h of this type l i e s i n the i s o l a t i o n and m e a s u r e m e n t of v a r i a b l e s to gauge site quality. C l a u s (1969) demonstrated that this could be done f a i r l y a c c u r a t e l y f o r gasoline s e r v i c e stations and m o re w i l l be mentioned about this l a t e r . Other r e s e a r c h of this type i s p r e s e n t l y being c a r r i e d on f o r d o c t o r s ' offices (Bottomley, 1970) and housing (Hayward, 1970), but a great d e a l m o r e work needs to be done i n o r d e r that c o m p a r i s o n s between di f f e r e n t types of sites can be a c c o m p l i s h e d . It cannot be e m p h a s i z e d too s t r o n g l y that the s u c c e s s or f a i l u r e of a p a r t i c u l a r r e t a i l e s t a b l i s h m e nt is l a r g e l y a function of site q u ality. If we are to understand the s t r u c t u r e of the u r b a n environment, we must f i r s t know the p r o c e s s i n v o l v e d i n d e t e r m i n i n g the existence or non-existence of the component parts - - i n this case the i n d i v i d u a l r e t a i l s i t e s . 1 3 T y p e A g r e a t d e a l o f g e o g r a p h i c l i t e r a t u r e e x i s t s o n t h e c l a s s i f i c a t i o n o f u r b a n s i t e s a c c o r d i n g t o t y p e . T h i s i s e s p e c i a l l y t r u e f o r r e t a i l s i t e s w h e r e t h e g e n e r a l p r a c t i c e h a s b e e n t o a g g r e g a t e a l l b u s i n e s s s i t e s i n t o o n e t y p e o n t h e b a s i s o f t h e i r p o s i t i o n i n t h e u r b a n s t r u c t u r e . H e r e t h e t y p e o f s i t e i s c a t e g o r i z e d a c c o r d i n g t o s t r u c t u r e , r a t h e r t h a n d e t e r m i n i n g s t r u c t u r e b y t h e a r r a n g e m e n t o f v a r i o u s t y p e s o f s i t e . A l t h o u g h t h e r e s u l t s b y e i t h e r m e t h o d w o u l d a p p e a r t o b e t h e s a m e , t h e l a t t e r a p p r o a c h w o u l d s e e m t o b e t h e m o s t f l e x i b l e . T h e f i r s t m a j o r g e o g r a p h i c e f f o r t i n t y p o l o g y o f r e t a i l s i t e s w a s d o n e b y P r o u d f o o t ( 1 9 3 7 ) w h o u s e d t h e c r i t e r i a o f s i z e o f a g g l o m e r a t i o n , s i z e o f e s t a b l i s h m e n t , a n d t y p e o f c u s t o m e r , t o e s t a b l i s h f i v e c a t e g o r i e s o f r e t a i l " s t r u c t u r e : " ( 1 ) C . B . D . , ( 2 ) o u t l y i n g b u s i n e s s c e n t e r , ( 3 ) p r i n c i p a l b u s i n e s s t h o r o u g h f a r e , ( 4 ) n e i g h b o r h o o d b u s i n e s s s t r e e t , a n d ( 5 ) i s o l a t e d s t o r e c l u s t e r . I m p l i c i t i n . P r o u d f o o t ' s c a t e g o r i z a t i o n o f b u s i n e s s t y p e s i s t h e m o d e o f t r a n s p o r t a t i o n u s e d i n r e a c h i n g t h e e s t a b l i s h m e n t . C a n o y e r ( 1 9 4 6 ) m a d e e x p l i c i t u s e o f m o d e o f t r a n s p o r t a t i o n i n h e r c l a s s i f i c a t i o n o f r e t a i l " l o c a t i o n s . " H e r f i v e c a t e g o r i e s a r e v e r y s i m i l a r t o t h o s e o f P r o u d f o o t : ( 1 ) c e n t r a l s h o p p i n g d i s t r i c t , ( 2 ) s u b -c e n t e r s , ( 3 ) s t r i n g s t r e e t s ( 4 ) n e i g h b o r h o o d s ^ ( 5 ) i s o l a t e d s t o r e s . A l t h o u g h K e l l e y ( 1 9 5 6 ) e m p l o y s t h r e s h o l d s i z e , r a n g e , a n d t r a n s p o r t a t i o n i n e s t a b l i s h i n g a f a i r l y d e t a i l e d d e s c r i p t i o n o f b u s i n e s s 14 " s t r u c t u r e " his model is based on the idea of cost m i n i m i z a t i o n . People w i l l always shop at the place of least transfer cost for a sp e c i f i c good. K e l l e y is one of many w r i t e r s to introduce the idea of planned and unplanned shopping centers into the type of r e t a i l s i t e s . Nelson (1958) takes a s l i g h t l y different stance and claims that there are two types of r e t a i l "locations:" (1) generative, to which the customer is d i r e c t l y attracted from his place of residence, and (2) suscipient, to which the customer i s i m p u l s i v e l y or coincidently attracted while moving about the area where the r e t a i l store i s located. A t the basis of Nelson's typology is s t i l l the idea of some form of linkage between different s i t e s . Probably the most w e l l known work on types of r e t a i l sites has come from the Chicago school led by B r i a n B e r r y (see B e r r y , 1963; B e r r y & Tennant, 1965; Simmons, 1964, 1966). Using the basic processes of central place theory, B e r r y proposes a h i e r a r c h i c a l s tructuring of intra-urban r e t a i l centers s i m i l a r to that used to describe urban s e t t l e -ments and their hinterland. Unable to account for highway-oriented or s p e c i a l i z e d r e t a i l i n g s t r i c t l y by the use of central place axioms, B e r r y modified his general model to make them fit into the " s t r u c t u r e " (Figure 1). C e n t r a l to Berry's h i e r a r c h i c a l ordering of r e t a i l centers are the concepts of range and threshold. Range is the distance that a consumer w i l l t r a v e l i n order to purchase goods at a r e t a i l outlet and threshold is defined as the minimum sales volume required for the i n i t i a l operation or the condition of entry of any r e t a i l business type. (It should CENTERS Planned or Unplanned Conv. Neighb'd Community -« • — Regional Metropolitan C.B.D. •* RIBBONS Traditiona I shopping street I Urban arterial I New suburban ribbon I Highway oriented Planned (plaza) Unplanned -1—1 I SPECIALIZED A R E A S I Automobiles rows Printing districts Entertainment districts Exotic markets Furniture districts Medical centers Planned U nplanned F I G U R E 1: T h e s t r u c t u r e o f i n t r a - u r b a n b u s i n e s s a n d c o m m e r c e . S o u r c e : B e r r y k H o r t o n , 1 9 7 0 , p . 4 5 7 . 16 be noted that business type, defined by the S.I.C. index, and type of site are not synonymous. ) A c c o r d i n g to the model " a l l business types are ordered according to threshold s i z e " (Garner, 1966, p. 104), therefore the enterprise with the highest threshold w i l l demand the most accessible spot i n the ci t y and w i l l of course, be at the top of the h i e r a r c h y . As Garner (1966) points out, however, the r e a l w o r l d patterns are considerably more complex than this d e t e r m i n i s t i c model suggests (p. 144). One assumption that cannot be met by the model is that r e t a i l outlets performing the same function have i d e n t i c a l thresholds: i d e n t i c a l not only i n size but also i n kind of product. Garner uses the example of bars that may range from a chic c o c k t a i l lounge to the p r o v e r b i a l "joint. " Although serving e s s e n t i a l l y the same function they are not l i k e l y to have the same threshold; nor, i n fact, do they offer the same product. Rather than grouping a l l bars into one class of business type under the available system of c l a s s i f i c a t i o n , i t would be more r e a l i s t i c to consider them as offering different goods and consequently comprising different business types. A s i m i l a r argument can be extended to include the c l a s s i f i c a t i o n of a l l other business types i n the nucleation (p. 116). o o « o o o o o o a o » a o Q * Q * » « o « a o e a o Once the assumption of homogeneity within any business type is relaxed to include the notion of product differentiation, it i s apparent that a simple ranking of business types by threshold size is no longer possible . . . instead . . . each business type w i l l be associated with a range of thresholds rather than just a unique threshold size as i m p l i e d in the operational definitions of threshold used i n the current l i t e r a t u r e (p. 118). The importance of product differentiation i n r e t a i l sites has been noted by many s c h o l a r s . K e l l e y (1956), for instance, points out the difference between product thresholds for shopping centers and department 17 stores (p. 415). This p r i n c i p a l is also f i r m l y established i n geographic l i t e r a t u r e by the many examples of corner grocery stores which survive on convenience goods and the l a r g e r supermarkets which s e l l a much wider range of products. The most suitable c l a s s i f i c a t i o n of urban r e t a i l sites would seem to be one which dealt with i n d i v i d u a l r e t a i l functions. In other words, a typology might be made for hotel s i t e s , laundromat.sites^ doctors' off i c e s , etc. The most salient features on which to base this typology (as suggested by the literature) appear to be the dominant form and structure of transportation that i s used to frequent.the site and the kind and size of threshold of the s i t e . Transportation mode as a factor in determining type of site has been used i m p l i c i t l y or e x p l i c i t l y by Proudfoot (1937), Canoyer (1946), K e l l e y (1956), Nelson (1958), Horton (1968), and to some extent B e r r y (1963). Rannells (1956) says that i t i s the number and type of linkages that are made between sites that i n effect determine city structure. If this is true i t is perhaps wise to c l a s s i f y type of site by transportation mode. The role of the threshold i n type of site is not clear although some definite relationship appears to exist. Perhaps it is the mode of transportation that determines threshold; but as yet this has not been e m p i r i c a l l y tested. An excellent example of c l a s s i f i c a t i o n of site by type comes 1 8 f r o m t h e o i l i n d u s t r y . T h e i r f i v e t y p e s o f s e r v i c e s t a t i o n s ( f r e e w a y , m a i n s t r e e t , s h o p p i n g c e n t e r , n e i g h b o r h o o d , d o w n t o w n ) a r e d i s t i n g u i s h e d o n t h e b a s i s o f t h r e s h o l d a n d t r a n s p o r t a t i o n . T h e o b v i o u s d i s t i n c t i o n b y t r a n s p o r t a t i o n i s d u e t o t h e f a c t t h a t s t a t i o n s a r e d e s i g n e d t o a c c o m m o d a t e a p a r t i c u l a r k i n d o f t r a f f i c f l o w . T h e l a y o u t , f a c i l i t i e s , a n d p r o d u c t m i x o f t h e n e i g h b o r h o o d s t a t i o n w o u l d n o t w o r k o n t h e f r e e w a y . I t i s i n t e r e s t i n g t o n o t e h e r e h o w t h e t r a n s p o r t a t i o n a r t e r y c a n a l s o e f f e c t t h e f o r m o f t h e s i t e . A l t h o u g h a l l s e r v i c e s t a t i o n s s e l l g a s o l i n e t h e y a l s o d e r i v e i n c o m e f r o m o t h e r s o u r c e s . T h e f r e e w a y s t a t i o n , f o r e x a m p l e , m a y n e e d t h e s a m e s i z e o f t h r e s h o l d a s t h e n e i g h b o r h o o d s t a t i o n , b u t u s u a l l y r e c e i v e s i t s i n c o m e f r o m t h e s a l e o f g a s o l i n e a n d r e l a t e d p r o d u c t s , w h i l e o n e - h a l f o f t h e n e i g h b o r h o o d s t a t i o n ' s i n c o m e m a y b e f r o m s e r v i c i n g a n d r e p a i r i n g a u t o m o b i l e s . T h i s d i f f e r e n c e i n k i n d o f t h r e s h o l d i s g e n e r a l l y t r u e f o r a l l t y p e s o f s e r v i c e s t a t i o n s i t e s . T h e p r e s e n t m e t h o d s o f c l a s s i f y i n g r e t a i l e s t a b l i s h m e n t s h a s a l r e a d y s h o w n t h a t t h e r e i s a s t r o n g a f f i n i t y a m o n g c e r t a i n t y p e s o f r e t a i l s i t e . I t i s h o p e d t h a t b y u s i n g t h e m e t h o d o f t y p i n g s i t e s a c c o r d i n g t o t h r e s h o l d a n d t r a n s p o r t a t i o n t h a t e v e n f i n e r d i f f e r e n t i a t i o n s i n r e t a i l s t r u c t u r e c a n b e o b s e r v e d . H o w e v e r , m o r e w o r k o n t h i s t o p i c s t i l l n e e d s t o b e d o n e . " R e f i n e m e n t s a r e n e e d e d i n t h e c l a s s i f i c a t i o n o f b u s i n e s s t y p e s a n d a m o r e t h o r o u g h a p p r a i s a l o f t h e t h r e s h o l d c o n c e p t a n d p r o d u c t d i f f e r e n t i a t i o n b e t w e e n e s t a b l i s h m e n t s m u s t b e d e v e l o p e d " ( G a r n e r , 1 9 & 7 , p . 3 5 1 ) . M o r e a t t e n t i o n m u s t a l s o b e p a i d t o t h e m o d e o f t r a n s p o r t a t i o n 1 9 that i s used to gain access to the s i t e . Network Networks * of r e t a i l sites (although aggregated to a much l a r g e r scale) has received a great deal of attention from geographers, starting with C h r i s t a l l e r ' s (1933) work on ce n t r a l place theory and being pursued aggressively by others including B e r r y (1967) and his colleagues. Although this area has been worked in great depth, one of the main drawbacks to this approach is that it is in the category of being normative geography (Wolpert, 1964). As such, it has l i t t l e p r a c t i c a l application when applied to the scale of ind i v i d u a l s i t e s . Even at the scale of " r e t a i l c e n t e r s " within c i t i e s , this approach is not adequate enough to describe the r e a l w o r l d situation ( B e r r y , 1959, p. 154). Geographic rese a r c h on network of sites for a single r e t a i l type has mainly taken the form of delineation of trade areas for various r e t a i l outlets or the a p p r a i s a l of the spatial d ispersion of competitive sites„ Both of these topics demand a spa t i a l study of the existing sites of a pa r t i c u l a r r e t a i l type. Canoyer (1946) regards competition as the second most important factor, behind t r a f f i c density, i n determining the successf u l selection of a r e t a i l s i t e . She states that this is e s p e c i a l l y true i n picking gasoline ser v i c e stations that w i l l have a high sales volume (p. 43). In her analysis of site selection methods, much time is devoted to examining the location ^•Network here should not be confused with graph theory. 20 and quality of s i m i l a r types of r e t a i l sites surrounding a prospective location. K e l l e y (1955) also makes s p e c i a l mention of the geographic dispersion of competitive outlets as an important c r i t e r i a i n the selection of r e t a i l s i t e s . S i m i l a r l y , this point is developed extensively by Kornblau and Baker (1968) who state that ". . . the quantity, quality, and location of competition (present and prospective) affect the performance of existing stores . . . . They are also v i t a l elements in planning a store location strategy for an extensive market a r e a " (p. 129). Huff (1966) i n his model for predicting optimum r e t a i l location also takes the location, quantity, and quality of competitive f i r m s into account. A n interesting aspect of site network is mentioned by A l d e r s o n and Shapiro (1964), who explain that a f i r m may choose to build an "optimal network of s i t e s . " This i s done i n order to make efficient use of widespread advertising and credit cards. The general plan in this move seems to be the strategic placement of sites throughout the whole market area. Kornblau and Baker (1968) are quick to point out that this p ractice is t y p i c a l of certain types of chain stores. Although such a network system has not been studied by geographers, the returns f rom rese a r c h on this topic would seem to be of great help i n understanding the o v e r a l l urban stru c t u r e . A knowledge of the processes involved in the functioning of a complex network of r e t a i l sites would undoubtedly add a great deal to our understanding of linkages in the city. In a case like this^ there are linkages between the individual sites and the f i r m that owns them, 2 1 l i n k a g e s b e t w e e n c o n s u m e r s a n d a s i n g l e s i t e , a n d l i n k a g e s o f c o n s u m e r s t o m a n y s i t e s . I t i s h o p e d t h a t s o m e r e s e a r c h i n t o t h i s t o p i c w i l l b e d o n e i n o r d e r t o e s t a b l i s h t h e f e a s i b i l i t y o f s u c h a n a p p r o a c h . Q u a l i t y R a t i n g o f S e r v i c e S t a t i o n S i t e s I n o r d e r t o t e s t t h e h y p o t h e s i s t h a t d i f f e r e n t m a r k e t i n g s t r a t e g i e s c a n c a u s e d i f f e r e n c e s i n s i t e q u a l i t y , a n i n s t r u m e n t t o . m e a s u r e s i t e q u a l i t y m u s t b e e s t a b l i s h e d . S i n c e t h e g a s o l i n e s e r v i c e s t a t i o n i n d u s t r y h a s b e e n c h o s e n a s a c a s e s t u d y i n w h i c h t o t e s t t h e h y p o t h e s i s , t h e r e m a i n d e r o f t h i s c h a p t e r w i l l d e a l w i t h t h e d e v e l o p m e n t o f a n i n s t r u m e n t 2 t o r a t e t h e q u a l i t y o f s e r v i c e s t a t i o n s i t e s . A s i t e r a t i n g i n s t r u m e n t c a n b e d e f i n e d a s a n i n s t r u m e n t d e s i g n e d t o g i v e a q u a n t i t a t i v e m e a s u r e o f t h e p e r f o r m a n c e o f a u n i t o f r e a l e s t a t e w i t h r e s p e c t t o s o m e g i v e n c r i t e r i o n . T h e y a r e f r e q u e n t l y u s e d i n t h e f i e l d o f r e a l e s t a t e a p p r a i s a l w h e r e t h e c r i t e r i o n m e a s u r e u s e d i s u s u a l l y m a r k e t v a l u e . T h e r e i s n o r e a s o n h o w e v e r w h y m a r k e t v a l u e s h o u l d b e u s e d a n d a n y m e a s u r e c a n s e r v e a s t h e c r i t e r i o n . T h e d e v e l o p m e n t o f s i t e r a t i n g i n s t r u m e n t s w i t h i n t h e f i e l d o f r e a l e s t a t e w a s a n a t u r a l d e v e l o p -m e n t o f t h e p r o c e d u r e s o f a p p r a i s a l c o m m o n l y u s e d , b e i n g i n e s s e n c e f o r m a l i z e d v e r s i o n s o f t h e s e m e t h o d s . T r a d i t i o n a l m e t h o d s o f a p p r a i s a l h a v e a t t e m p t e d t o i s o l a t e t h o s e f a c t o r s w h i c h w e r e c o n s i d e r e d t o b e t h e m o s t s i g n i f i c a n t i n a f f e c t i n g t h e p e r f o r m a n c e o f t h e u n i t u n d e r c o n s i d e r a t i o n M u c h o f t h e f o l l o w i n g m a t e r i a l h a s b e e n t a k e n f r o m a f o r t h c o m i n g a r t i c l e b y C l a u s , R o t h w e l l , & B o t t o m l e y ( 1 9 7 1 ) . 22 and to estimate in the light of these f a c t o r s the p e r f o r m a n c e of the unit. E x c e l l e n t examples of such methods can be found i n C a r b (1968) and D rennan (1968). The m a j o r drawback of these methods i s that they are e x t r e m e l y time consuming due to the l a r g e amounts of data that must be c o l l e c t e d . In an attempt to s i g n i f i c a n t l y d e c r e a s e the amount of time needed to p e r f o r m an a p p r a i s a l v a r i o u s w r i t e r s designed site r a t i n g s c h e d u l e s . C a n o y e r (1946, pp. 21-22) was one of the f i r s t to do t h i s . A schedule developed by B r i c k (1968) co n c e r n e d i t s e l f with the a p p r a i s a l of gasoline s e r v i c e stations and i n it he p r e s e n t e d eleven f a c t o r s as being of m a j o r importance ( F i g u r e 2). The a p p r a i s e r rates the station under c o n s i d e r a t i o n on a five point l i n e a r s c a l e with r e s p e c t to the eleven v a r i a b l e s . T h e s e v a r i a b l e s a r e then a s s i g n e d d i f f e r e n t i a l weightings, e.g. v i s i b i l i t y 7 p e r cent, adequacy of s i z e and shape 10 per cent, and a total percentage s c o r e is thus obtained f o r the station by summing a c r o s s the eleven v a r i a b l e s * Such a schedule can only be u s e f u l when it i s accompanied with a c o m p r e -hensive site r a t i n g manual in which the important f a c t o r s are d i s c u s s e d in o r d e r to p r o v i d e c r i t e r i a f o r the assignment of a station to one of the five p o s s i b l e s c o r e s on each v a r i a b l e . B r i c k does not state what his c r i t e r i o n m e a s u r e i s , although i m p l i c i t l y he suggests that it is average monthly gallonage pumped by the station. T h i s schedule has been in common use among site developers f o r some time and f o r m e d the basis of the i n s t r u m e n t used i n the C a l i f o r n i a gasoline study ( C l a u s , 1969). C l a u s made two m o d i f i c a t i o n s to B r i c k ' s o r i g i n a l instrument.' W e i g h t e d % F a c t o r E x c e l l e n t ( 1 0 0 ) A b o v e A v e . ( 8 0 ) G o o d ( 6 0 ) B e l o w A v e . ( 4 0 ) P o o r ( 2 0 ) 1 0 A d e q u a c y o f s i z e 1 0 8 6 4 2 1 0 N e i g h b o r h o o d b u s i n e s s p o t e n t i a l 1 0 8 6 4 2 9 G r a d e o f s t r e e t a n d h i g h w a y 9 7 . 2 5 . 4 3 . 6 1 . 8 7 V i s i b i l i t y f r o m r o a d w a y 7 5 . 6 4 . 2 2 . 8 1 . 4 11 C o m p a t a b i l i t y o f t r a f f i c f l o w 11 8 . 8 6 . 6 4 . 4 2 . 2 6 T r a n s i e n t b u s i n e s s p o t e n t i a l 6 4 . 8 3 . 6 2 . 4 1 . 2 4 Z o n i n g 4 3 . 2 2 . 4 1 . 6 . 8 5 E a s e o f a p p r o a c h 5 4 3 2 1 1 8 E c o n o m i c b a l a n c e ( i n c l u d i n g a d e q u a c y o f b u i l d i n g s ) 1 8 1 4 . 4 1 0 . 8 7 . 2 3 . 6 1 3 S t a b i l i t y o f a r e a 1 3 1 0 . 4 7 . 8 5 . 2 2 . 6 7 F u t u r e t r e n d s o f a r e a 7 5 . 6 4 . 2 2 . 8 1 . 4 1 0 0 T o t a l p o i n t s c o r e - - 5 0 . 8 r a t i n g - b e l o w a v e r a g e F I G U R E 2 : I l l u s t r a t i o n o f B r i c k ' s S i t e R a t i n g S c h e d u l e ( S o u r c e : B r i c k , 1 9 6 8 ) 24 The f i r s t was to exclude the zoning and ease of access factors and substitute in their place the monopolistic and strategic f a c t o r s . This modification had been made i n i t i a l l y by many of the site developers using the schedule i n C a l i f o r n i a . The second modification was more basic i n nature and was to divide the eleven factors into two groups, one group termed the micro-layout subgroup and the other, the macro-location subgroup (Figure 3). This sp l i t recognizes that those factors that are i n t r i n s i c to the site are of a different nature than the factors i n the macro subgroup. That both sets of factors influence the performance of a r e t a i l site was recognized by K e l l e y (1955, p. 429, see Figure 4) and by Huff (1966), who says, "It is obvious that there are a number of important factors related to the site i t s e l f that can influence the volume of sales that can be expected from a given location. V i s i b i l i t y and a c c e s s i b i l i t y , as w e l l as the nature and condition of adjacent property, have a bearing on the sales that can be expected" (p. 302). This point i s w e l l taken, but i t is asserted here that the two subgroups of factors are surrogates for two different types of performance. The m i c r o subgroups are seen as surrogates of gallonage whereas the macro factors are seen as surrogates of longevity, i . e . the propensity of a gasoline s e r v i c e station to remain in business. These concepts have been discussed by Claus and Rothwell (1970) as follows: The abbreviations INSV and E X S V represent the terms i n t e r n a l site variable and external site variable respectively. In an e a r l i e r book of this s e r i e s , Spatial Dynamics of Gasoline  Service Stations, the phrase " m i c r o " was used to convey the concept of INSV and "macro"to signify the concept of EXSV. Both " m i c r o " and INSV represent the idea that certain variables i n t e r n a l to, or i n t r i n s i c i n , the site i t s e l f influence Rating V a r i a b l e s 100% E x c e l l e n t 8 0 % Above A v e . 6 0 % Good 4 0 % Below A v e . 2 0 % P o o r M I C R O L A Y O U T « Adequacy of size and shape 10 8 6 4 2 V i s i b i l i t y 7 5.6 4.2 2. 8 1.4 Street and highway grades 9 . 7.2 5.4 3.6 1.8 Comp a t a b i l i t y to t r a f f i c 11 8. 8 6.6 4.4 2.2 E c o n o m i c balance (including adequacy of buildings) 18 14.4 10.8 7.2 3.6 M A C R O L A Y O U T Neighborhood business potential 10 8 6 4 2 T r a n s i e n t business potential 6 4.8 3.6 2.4 1.2 Mo n o p o l i s t i c f a c t o r 4 3.2 2.4 1.6 .8 Stabil i t y of a r e a i 13 10.4 7.8 •5.2 2.6 Fu t u r e trends of a r e a 7 5.6 4.2 2.8 1.4 Stra t e g i c factor 5 4 3 2 1 F I G U R E 3: I l l u s t r a t i o n of C l a u s ' Site Rating Schedule (Source: C l a u s 5 1969) 26 F a c t o r s Ranking of Site 2 3 4 A . R E G I O N A L F A C T O R S Pop u l a t i o n within 15 minutes 16-30 minutes P u r c h a s i n g power amount and s t a b i l i t y d i s t r i b u t i o n G rowth of population amount degree C o m p e t i t i o n amount quality B. S I T E F A C T O R S Size of t r a c t m i n i m u m s i z e undivided buffer a r e a A c c e s s and e g r e s s p r i m a r y roads s e c o n d a r y roads T r a f f i c p r e s e n t pattern future pattern P a r k i n g amount nearn e s s to s t o r e s C o s t a c q u i s i t i o n maintenance C. S I T E F A C T O R S T e r r a i n conditions grading s u b s o i l conditions U t i l i t i e s p r o x i m i t y Expans ion - E n v i r o n m e n t expansion environment F I G U R E 4: I l l u s t r a t i o n of K e l l e y ' s Site Rating Schedule (Source: K e l l e y , 1955) 27 the p e r f o r m a n c e of the s i t e . S i m i l a r l y , " m a c r o " and E X S V convey the thought that v a r i a b l e s a s s o c i a t e d with the e n v i r o n s , i . e . s u r r o u n d i n g s o c i o - e c o n o m i c c l i m a t e , determine the e c o n o m i c v i a b i l i t y of a s p e c i f i c s i t e . INSV is c o n c e r n e d with the site i t s e l f , while E X S V is concerned with the s u r r o u n d i n g a r e a . T h e s e two concepts may be l i k e n e d to the p h r a s e " s i t e and s i t u a t i o n " which has gained p o p u l a r i t y in s e v e r a l schools of geography, but f o r our purposes contains connotations that are not altogether compatible with our p r e s e n t r e s e a r c h (p. 27). The ac t u a l a p p l i c a t i o n and use of the site r a t i n g i n s t r u m e n t in the V a n c o u v e r m a r k e t w i l l be d i s c u s s e d l a t e r under the methods of a n a l y s i s . It has been introduced at this point as supporting evidence on the i m p o r t a n c e of site q u a lity i n examining u r b a n s t r u c t u r e . C H A P T E R 3 T H E F I R M A N D F I R M S T R A T E G Y Nature of the M o d e r n F i r m The elements r e s p o n s i b l e f o r making p o s i t i v e d e c i s i o n s concerning the landscape a r e v e r y c o m p l i c a t e d . The d e c ision-maker can be a s m a l l business man, a home owner, a c i t y c o u n c i l , a p r o f e s s i o n a l o r g a n i z a t i o n , or a business f i r m . E v e n within organizations t h e m s e l v e s , there exists both i n d i v i d u a l and c o l l e c t i v e d e c i s i o n - m a k e r s ( C y e r t & M a r c h , 1963; Simon, 1964b). A s F o r m (1954) points out, "While they (business f i r m s ) may not consume the greatest quantities of land^ they do p urchase the l a r g e s t most s t r a t e g i c p a r c e l s . Unknowingly t h e i r l o c a t i o n a l d e c i s i o n s tend to set the pattern of land use f o r other e conomic and non-e c o n o m i c o r g a n i z a t i o n s 1 1 (p. 318). B l a u and Scott (1962) a l s o emphasize the importance of f i r m ' s d e c i s i o n s as they ". . . affect such d i v e r s e aspects as the l o c a t i o n of the community, its s i z e and growth pattern, the functions it p e r f o r m s for the l a r g e r s o c i e t y , its o c c u p a t i o n a l compo-s i t i o n , its tot a l landuse pattern, its power and c l a s s s t r u c t u r e , and its g e n e r a l c h a r a c t e r " (p. 199). Although the influence of the business f i r m i n the u r b a n environment 29 is c r u c i a l , l i t t l e r e s e a r c h has been done to m e a s u r e the exact dimensions of this i n f l u e n c e . Simon, r e a l i z i n g the inadequacies of most e m p i r i c a l studies on companies c a l l s upon economists to adopt a m o r e r i g i d b e h a v i o r a l a p p roach i n t h e i r r e s e a r c h : We a r e a l l c o ncerned with human behavior i n o r g a n i z a t i o n s ; hence our work i s , whether we c a l l it so or not; b e h a v i o r a l s c i e n c e . We are p a r t i c u l a r l y c o n c e r n e d with m a n a g e r i a l behavior - hence with management functions. Since most of the behavior that o c c u r s i n organizations involves the choice of course of a c t i o n , we a l l take the d e c i s i o n - m a k i n g approach. Human behavior in organizations produces complex i n t e r -actions and i n d i r e c t consequences. (1964, b, pp. 77-78) F o r the most p a r t , this thesis adheres to the guidelines set f o r t h i n the above quotation. The thesis examines one aspect of d e c i s i o n - m a k i n g i n the f i r m (marketing strategy) and investigates that p a r t i c u l a r m a n i f e s t a t i o n of m a n a g e r i a l behavior in a manner acceptable to the b e h a v i o r a l s c i e n c e . T h i s a p p roach taken here is i n contrast to the more t r a d i t i o n a l m i c r o - e c o n o m i c methods. M o s t r e c e n t l i t e r a t u r e on the theory of the f i r m makes it obvious that the t r a d i t i o n a l m i c r o - e c o n o m i c approach is no longer c o n s i d e r e d adequate enough to p o r t r a y a u s e f u l p i c t u r e of the r e a l w o r l d f i r m . The t r a d i t i o n a l theory 'postulates a r e l a t i o n s h i p between 'input f a c t o r s ' -- labour and c a p i t a l on the one hand, and p h y s i c a l output on the other, through the medium of a p r o d u c t i o n function, " (Ansoff, 1969, p. 11). Inherent i n the t h e o r y is the assumption of a b o u n d l e s s l y r a t i o n a l e c o nomic man who manipulates the f a c t o r s i n v o l v e d and who makes a l l the c o r r e c t d e c i s i o n s in o r d e r to m a x i m i z e p r o f i t s . The ' r a t i o n a l i s t i c 30 concepts' ( H i l l & E gan, 1966) of the f i r m can be d i s t i n g u i s h e d by four m a j o r c h a r a c t e r i s t i c s : 1) an emphasis on a c t i o n by a c o l l e c t i v e r a t h e r than by a c t o r s in a c o l l e c t i v e ; 2) the common assumption of p r e d e t e r m i n e d behavior patterns which are o r d i n a r i l y p r e s u m e d to be r a t i o n a l ; 3) a c l e a r - c u t goal (usually p r o f i t m a x i m i z a t i o n ) ; 4) an e x t e r n a l environment which creates the need f o r action (p. 15). A great d e a l of c r i t i c i s m has been l e v e l e d at the t r a d i t i o n a l t heory. A n s o f f (1969) says that the theory f a i l s to explain behavior of r e a l f i r m s and is not u s e f u l to business f i r m s i n t h e i r d e c i s i o n making. It has been argued that the concept of p r o f i t m a x i m i z a t i o n is i n c o r r e c t both d e s c r i p t i v e l y and n o r m a t i v e l y . D e s c r i p t i v e l y , because e m p i r i c a l studies of f i r m s show that while f i r m s do . indeed seek p r o f i t , they a l s o appear to seek other o b j e c t i v e s . N o r m a t i v e l y , because of a growing cl i m a t e of opinion that f i r m s should accept other goals f o r its behavior i n addition to p r o f i t . Due to the fact that it excludes b e h a v i o r a l and i n f o r m a t i o n a l v a r i a b l e s , m i c r o - e c o n o m i c theory p r o v i d e s no d i f f e r e n t i a t i o n among f i r m s . A c c o r d i n g to the theory, given a set of i n i t i a l economic conditions, a l l f i r m s w i l l behave i d e n t i c a l l y . Whereas in a c t u a l fact one o bserves d i f f e r e n c e s of behavior among f i r m s i n the same environment. (Ansoff, 1969, pp. 12-13) In r e p l y ^  A n s o f f c a l l s f o r a theory of the f i r m that includes " b e h a v i o r a l v a r i a b l e s , " which d e s c r i b e people and t h e i r r e l a t i o n s h i p s within the f i r m ^ as w e l l as " i n f o r m a t i o n a l v a r i a b l e s " which m e a s u r e and define states of knowledge about the f i r m a v a i l a b l e to v a r i o u s p a r t i c i p a n t s . He a l s o takes pains to point out the great i m portance i n any new t h e o r y of " s t r u c t u r a l v a r i a b l e s " and " s t r a t e g i c v a r i a b l e s " (1969, pp. 12-40). A n s o f f (1965) uses Chandler's (1962) work on c o r p o r a t e s t r u c t u r e to show that the f o r m and dimensions of any c o r p o r a t e b u r e a u c r a c y to a l a r g e extent 31 influence the behavior of the f i r m as a whole as w e l l as indiv i d u a l behavior i n the f i r m . But Chandler also says that "structure follows strategy" and to a large extent strategy is dependent upon individuals i n the f i r m who pursue spe c i f i c and often personal goals. Starbuck (1965) states that "It would be nice to say that some of these goals are char a c t e r -i s t i c of certain types (forms) of organizations and not others . . . . Ce r t a i n l y such relationships must exist. But the existing data is fragmentary. " (p. 468). A l s o , the structure of the organization's environ-ment determines the relative effectiveness of different behavior strategies (Dent, 1959). As it appears here, we have a t r i a d of interdependent and in t e r r e l a t e d variables -- character, structure, and strategy. Ansoff's main concern, however, is for strategy. "In many ways strategic decisions are the basic determinants in the success of the f i r m f o r , unless the firm's products are addressed to market areas i n which a demand exists and in which the competitive climate is favorable, even the best organizational form, or the most b r i l l i a n t control of operations w i l l f a i l to produce p r o f i t " (1969, p. 15). Ansoff has not been the only s o c i a l s c i e n t i s t to note the i l l s of micro-economic theory. In reaction to what A d l i Stevenson c a l l e d "smash and grab i m p e r i a l i s m " some have even stated that the idea of profit m a x i -mization is both i m m o r a l and s o c i a l l y unacceptable (Anthony, 1968). Although few people agree with such an extreme view, most can r e a d i l y see that micro-economics is b a s i c a l l y a static theory concerned with successive e q u i l i b r i u m conditions and thus not capable of dealing with distinctions 32 between s h o r t - and long-range plans. A l s o , the theory does not reco g n i z e the tradeoff between investments for c u r r e n t p r o f i t and those f o r future p r o f i t ( C y e r t & M a r c h , 1963). Some economists have o f f e r e d a l t e r n a t i v e c o r p o r a t e goals to re p l a c e p r o f i t m a x i m i z a t i o n . * One of the m o r e i n t e r e s t i n g r e p l a c e m e n t t h e o r i e s is that put f o r t h by B a u m o l who c l a i m s that "a v a r i e t y of goals a r e apt to influence the operation of any company i n a manner which i s not p r e c i s e l y s p e c i f i e d nor c l e a r l y d e t e r m i n e d (1964, p. 323). He h i m s e l f believes that company growth obtained through i n c r e a s e d sales volume at the expense of p r o f i t i s both the p r i m e objective and modus operandi of many f i r m s he has studied (1959). B a u m o l goes as f a r as stating that f i r m s embark on an i m p l i c i t p o l i c y of p r o f i t c o n s t r a i n t i n o r d e r to f u l f i l l the a s p i r a t i o n s of some m a n a g e r i a l groups to expand the f i r m ' s s h a re of the market. M a r k e t s h a r e , r i s i n g s a l e s volume, and m u l t i p l i c i t y of p r o f i t s a r e not synonymous with p r o f i t . In a s i m i l a r v e i n , it is i n t e r e s t i n g to note that Roberts (1956) found that the s a l a r y of the highest p a i d executive i s independent of the f i r m ' s p r o f i t ; and i n c r e a s e d exponentially with the firm ' s sales volume ( M a r c h , 1965, p. 455). Baumol's ideas a r e appealing and p e r s u a s i v e but as yet not enough e m p i r i c a l data has been gathered to c o n c l u s i v e l y support his statements. D r u c k e r (1958) a l s o discounts p r o f i t m a x i m i z a t i o n as the p r i m a r y goal of business f i r m s and suggests that s u r v i v a l is the c e n t r a l purpose. Starbuck (1965) supports this point and c l a i m s that s u r v i v a l is the only true ISee Solomon (1963) f o r m a x i m i z a t i o n of net worth and B e r a n e k (1963) f o r m a x i m i z a t i o n of m a r k e t value. 33 m e a s u r e of a firm ' s e f f i c i e n c y (p. 463). The p r o b l e m with this idea as with many others is that the 'real w o r l d ' f i r m does not appear to have one m a i n goal or objective. Most f i r m s seem to have a v e r y complex s y s t e m of goals. T h e r e a r e goals f o r the f i r m as a whole, goals f o r groups i n the f i r m , and i n d i v i d u a l goals. A l l of these a r e intertwined, s o m etimes complimenting one another, sometimes i n c o n f l i c t . The h e i r a r c h y of goals may constantly shift depending upon the o r g a n i z a t i o n a l s t r u c t u r e , e n v i r o n -ment, and p e r s o n a l i t y dominance of the a c t o r s i n the f i r m . C y e r t and M a r c h (1963) investigate i n depth the d e c i s i o n - m a k i n g behavior of the f i r m . They, too r e a l i z e that t r a d i t i o n a l e c onomic theory "has not been adequate to cope with o l i g o p o l i s t i c m a r k e t s " (p. 115). T h e i r a l t e r n a t i v e to this theory comes i n the f o r m of a d e s c r i p t i o n of how 'r e a l w o r l d ' f i r m s function and make d e c i s i o n s . The image they produce i s much dif f e r e n t f r o m the one p r o j e c t e d i n 'rational' e c onomic theory. T h e i r a c t o r , the f i r m , is m e r e l y a ma n i f e s t a t i o n of many i n d i v i d u a l a c t o r s . The f i r m ' s actions a r e not always e c o n o m i c a l l y r a t i o n a l , nor are the goals j it s t r i v e s f o r always those p r o f e s s e d . The m a i n point i n t h e i r book, A B e h a v i o r a l T h e o r y of the F i r m , is that the ma n i f e s t behavior of any f i r m can only be r a t i o n a l i z e d when the behavior of the i n d i v i d u a l s i n the f i r m is examined. F o l l o w i n g c l o s e l y on this theme is the work of Simon (1957a and b, 1959, I960, 1964a and b) who states that the c e n t r a l c o n c e r n of a d m i n i s t r a -tive theory is with the boundary between r a t i o n a l and n o n - r a t i o n a l aspects of human s o c i a l behavior. A d m i n i s t r a t i v e behavior is p e c u l i a r l y of the 34 theory of intended and bounded r a t i o n a l i t y of the behavior of human beings who s a t i s f i c e because they do not have the c a p a c i t y to m a x i m i z e (1964, b). The f i r m may be d e s c r i b e d as a pattern of r e l a t i o n s h i p s among i n d i v i d u a l s , none of whom act with p e r f e c t r a t i o n a l i t y , but a l l of whom attempt to be as r a t i o n a l as p o s s i b l e within the l i m i t s set f o r them by th e i r p e r s o n a l i t i e s and by the environment. The f i r m becomes an i m p e r f e c t d e c i s i o n - m a k i n g machine, f o r c e d to choose between a l t e r n a t i v e s without knowing exactly what the r e s u l t s of each choice w i l l be. U n der s u c h conditions it becomes evident that men i n business cannot know the best a l t e r n a t i v e i n a l l cases where choices must be made; they cannot t h e r e f o r e m a x i m i z e anything. What b u s i n e s s m e n must s t r i v e f or is not m a x i m u m p r o f i t s ^ but r a t h e r f o r behavior patterns that produce s a t i s f a c t o r y c o n c l u s i o n s . In a d i s c u s s i o n of these ideas M c G u i r e (1966) states that Simon's concept of the f i r m " r e s t s m o re s e c u r e l y upon the base of r e a l i t y than do, f o r example, the economic notions of the f i r m " ( H i l l & E g a n , 1966, p. 22). In summary, the f i r m can be r e g a r d e d as having the following f e a t u r e s : 1) it i s the a c t o r s within the f i r m ^ r a t h e r than the f i r m i t s e l f ^  that acts; 2) that behavior is conditioned by p e r s o n a l i t y as w e l l as environment f a c t o r s ; 3) that as a minimum^ the b e h a v i o r a l p r o c e s s e s examined must take into account the cognition, p e r c e p t i o n , b e l i e f s ^ and knowledge of the a c t o r s ; 4) that r ewards and goals are often complex ( M c G u i r e , 1961). B e h a v i o r a l V a r i a b l e s i n D e c i s i o n - M a k i n g A t least three b a s i c v a r i a b l e s can be i d e n t i f i e d in any d i s c u s s i o n 35 of d e c i s i o n - m a k i n g . T h e s e a r e , c h a r a c t e r , s t r u c t u r e , and strategy. C h a r a c t e r . C h a r a c t e r may be defined as 'the attributes or features that make up and d i s t i n g u i s h the i n d i v i d u a l " (Webster, 1967). Since it is v i r t u a l l y i m p o s s i b l e to d e s c r i b e a l l the features or attributes of c h a r a c t e r a few b a s i c ones ar e u s u a l l y chosen. T h i s p r o c e d u r e is followed in psychology, s o c i o l o g y , etc. as w e l l as the p h y s i c a l s c i e n c e s , f o r what i s r e a l l y being done i s a p r o c e s s of c a t e g o r i z a t i o n . The d i f f i c u l t y i n d i s c u s s i n g the c h a r a c t e r of the d e c i s i o n - m a k e r l i e s i n the i s o l a t i o n and m e a s u r e m e n t of c h a r a c t e r i s t i c t r a i t s that w i l l be s e n s i t i v e enough to identify e v e r y i n d i v i d u a l , but allow enough f l e x i b i l i t y that a c t o r s of l i k e c h a r a c t e r can be e a s i l y grouped. B e cause c h a r a c t e r i s u s u a l l y c l o s e l y a s s o c i a t e d with b e h a v i o r , a c t o r s of s i m i l a r c h a r a c t e r should a l s o exhibit s i m i l a r b ehavior. In a d i s c u s s i o n of l o c a t i o n a l d e c i s i o n - m a k e r s P r e d suggests that the amount of i n f o r m a t i o n p o s s e s s e d by an a c t o r and the a b i l i t y to use that i n f o r m a t i o n is s u f f i c i e n t to c a t e g o r i z e d e c i s i o n - m a k e r s a c c o r d i n g to the above g u i d e l i n e s . . . . e v e r y l o c a t i o n a l d e c i s i o n is viewed as o c c u r r i n g under conditions of v a r y i n g i n f o r m a t i o n a b i l i t y , ranging, at l e a s t t h e o r e t i c a l l y , f r o m n u l l to p e r f e c t knowledge of a l l a l t e r n a t i v e s , as being governed by a l l v a r y i n g a b i l i t i e s (as w e l l as objectives) of the d e c i s i o n - m a k e r s . In the b e h a v i o r a l m a t r i x , the i n f o r m a -tion v a r i a b l e is depicted on the v e r t i c a l a x i s , and the a b i l i t y to act v a r i a b l e , which t h e o r e t i c a l l y v a r i e s f r o m tota l ineptitude to an aptitude f o r o p t i m a l s o l u t i o n , i s r e p r e s e n t e d on the h o r i z o n t a l a x i s . The l o c a t i o n a l d e c i s i o n - m a k i n g unit or a c t o r , be i t a single p e r s o n or a f i r m , can be thought of j o i n t l y having a r e a l s p a t i a l attribute (site and sit u a t i o n , land use, or pattern of movement) that is r e p r o d u c a b l e (conveyable) on a map, and 36 behavioral qualities that can be hypothetically located i n the behavioral matrix. (Pred, 1967, p. 24) P r e d never suggests any measurement techniques for his two c h a r a c t e r i s t i c s nor does he offer any e m p i r i c a l data to support his state-ments. However^ Claus (1969) i n a study of corporate decision-makers does present r i g i d instrumentation and concrete e m p i r i c a l data to back his hypothesis that actors (firms) can be distinguished by their information and a b i l i t y to act and that these c h a r a c t e r i s t i c s correlate very highly with the individual firm's locational behavior. Claus demonstrated that as the oligopolist's information and a b i l i t y to act on that information i n c r e a s e d , so did the quality of site that was chosen. It is not claimed that information and a b i l i t y to act are the only c h a r a c t e r i s t i c s by which a decision-maker may be c l a s s i f i e d . Indeed, i t is conceivable that certain circumstances and certain decision-makers w i l l necessitate some other measurement of character. It has already been suggested that role analysis (Gross et a l , 1964} and attitude or perception (Harvey, 1969) may be adequate to distinguish the character of the locational decision-maker. The problem with these measures of character^ as with information and a b i l i t y to act, lies i n the d i f f i c u l t y of v a l i d r e s e a r c h design. As Harvey (1969) states: We know that decisions are affected by attitudes, d ispositions, preferences, and the l i k e . We know, too, that mental processes may mediate the flow of information f rom the environment i n such a way that one ind i v i d u a l perceives a situation differently from another even though the external s t i m u l i are the same. (p. 36). 37 H a r v e y is r e a l l y v o i c i n g a r e c o g n i t i o n that many f a c t o r s i n t e r n a l to the a c t o r h i m s e l f may prevent a c c u r a t e m e a s u r e m e n t on the individual's c h a r a c t e r . A s it now stands, v e r y l i t t l e is a c t u a l l y known about how people p e r c e i v e the environment and how they use t h e i r p e r c e i v e d i n f o r m a t i o n to achieve the goals they d e s i r e . It is obvious that m o re work must be done before the effects of the d e cision-maker's c h a r a c t e r on the landscape is t r u l y understood. S t r u c t u r e . T o hold p a r t i c i p a n t s together i n the completion of common p r o g r a m s of a c t i v i t y and in p u r s u i t of goals, most business f i r m s have developed r e l a t i v e l y stable i n t e r n a l s t r u c t u r e s . Most r e s e a r c h studies of such organizations s t r e s s a h i e r a r c h i c a l o r d e r i n g of authority and r e s p o n s i b i l i t y , c a r e f u l s p e c i f i c a t i o n of tasks to be p e r f o r m e d and of positions to be f i l l e d , f o r m a l r u l e s and regulations to govern many de c i s i o n s and a c t i o n s , and channels f o r the routing of i n f o r m a t i o n through the o r g a n i z a t i o n ( D i l l , 1965, p. 1096). T o cope with the d i v e r s i t y i n the s t r u c t u r e , type, and s i z e of organizations a great many th e o r i e s have been put f o r w a r d . Weber (1947), the most i n f l u e n t i a l w r i t e r i n the " s t r u c t u r a l i s t " s c h o o l , outlined his "typology of a u t h o r i t y " which defined the " i d e a l - t y p e " b u r e a u c r a c y . C e n t r a l to Weber's theory is the existence of r u l e s which codify behavior i n each office of the o r g a n i z a t i o n . He is p r i m a r l y i n t e r e s t e d in the b u r e a u c r a c y (firm) as a functional s t r u c t u r e , which he c o n s i d e r s to be bound together by r a t i o n a l laws into an o r g a n i z a t i o n . Weber suggested that to be effective and e f f i c i e n t as an o r g a n i z a t i o n a l i n s t r u m e n t , a m o d e r n 38 o r g a n i z a t i o n a l s t r u c t u r e r e q u i r e s b u r e a u c r a t i c authority. C h a r i s m a t i c r e l a t i o n s lack any s y s t e m a t i c d i v i s i o n of labour, s p e c i a l i z a t i o n , or s t a b i l i t y ( E t z i o n i , 1964, p. 52). Weber is v e r y n o r m a t i v e i n his a p p r o a c h and is opposed by those in the " c l a s s i c a l " s c h o o l and the "human r e l a t i o n s " s c h o o l . C l a s s i c a l o r g a n i z a t i o n theory, as f i r s t stated by G u l i c k and U r w i c k (1937), r e s t s on the assumption that the more a p a r t i c u l a r job can be broken down into its s i m p l e s t p a r t s , the m o r e s p e c i a l i z e d and consequently the more s k i l l e d a w o r k e r can become. F o l l o w i n g on this l i n e , the n e o - c l a s s i c a l approach, as r e p r e s e n t e d by Simon, Smithburg and Thompson (1959), pays con-s i d e r a b l e attention to f o r m a l s t r u c t u r e and to r a t i o n a l c o n s i d e r a t i o n s ; i t d i f f e r s f r o m the s t r u c t u r a l i s t a p p r oach i n studying the act u a l ways values (or goals and subgoals) of an o r g a n i z a t i o n can be and a r e implemented. The "human r e l a t i o n " approach as e x e m p l i f i e d by L e w i n (1952) can be s u m m a r i z e d as fo l l o w s : 1) the amount of work c a r r i e d out by a w o r k e r is not d e t e r -m ined by his p h y s i c a l capacity but his s o c i a l " c a p a c i t y ; " 2) noneconomic rewards pl a y a c e n t r a l r o l e i n d e t e r m i n i n g the mot i v a t i o n and happiness of the worker; 3) the highest s p e c i a l i z a t i o n is by no means the most e f f i c i e n t f o r m of the d i v i s i o n of labour; and 4) w o r k e r s do not re a c t to management and i t s norms and rewards as i n d i v i d u a l s but as m e m b e r s of a group. E m p i r i c a l studies on o r g a n i z a t i o n a l s t r u c t u r e have tended to r e l y on Weber's b a s i c f o r m u l a t i o n of b u r e a u c r a t i c h e i r a r c h y . 2 L i k e c o r p o r a t e 2 H a l l (1962, p. 396) l i s t s M e r t o n , Udy, Heady, P a r s o n s , B e r g e n , and L i t w a k as prominent auth o r i t i e s i n this f i e l d who have used Weber's ap p r o a c h to b u r e a u c r a c y . 39 character, corporate structure is troubled by a lack of methods and techniques to scale structure in a fashion that is acceptable to sound behavioral research. The l i t e r a t u r e contains s e v e r a l examples of techniques for measuring structure ( H a l l , 1962; B l a u & Scott, 1962; M a r c h , 1965 -- e s p e c i a l l y chapters on r e s e a r c h methodology), but each e m p i r i c a l r e s e a r c h design has been modeled to test a s p e c i f i c hypothesis. It would appear that the behavior of a f i r m may be examined i n the context of its bureaucracy. "Different types of behavior and i n t e r p e r s o n a l relationships are expected at different h i e r a r c h i c a l levels and these differences would appear to influence the s t r u c t u r e " ( H a l l , 1962, p. 397). The converse has also been observed where structure has a definite influence on the behavior of individuals within the organization ( F o r m , 1954; Chandler, 1962). In general i t can be said that varying degrees of bureaucratization " c e r t a i n l y have concomitant effects on other organization phenomena such as participant's behavior, effectiveness of goal-attaining endeavors, and relations with the external environment both i n terms of individuals and other organizations" ( H a l l , 1962, p. 402). Strategy. A strategy is a means of securing a goal. Or as K e l l e y puts i t , "Strategy . . . consists of long term plans of action designed to secure long term ends" (1968, p. 9). In the business world the term 3 Because there is no standard measurement scale for bureaucratic structure the f i r s t task of the r e s e a r c h e r is to establish some viable unit of measurement (dimension) for scaling the phenomena. 40 s t r a t e g y can have two meanings. A pure s t r a t e g y is a move or a s p e c i f i c s e r i e s of moves by a f i r m such as a product development p r o g r a m i n which s u c c e s s i v e products and m a r k e t s a r e delineated, and a grand or m i x e d strat e g y i s a s t a t i s t i c a l d e c i s i o n r u l e f o r deciding which p a r t i c u l a r pure strat e g y the f i r m should s e l e c t (Ansoff, 1965). The t e r m s t r a t e g y should not be confused with t a c t i c s . T a c t i c s involve s h o r t - r u n d e c i s i o n s that a r e not c r u c i a l to the s u r v i v a l of the f i r m . "They a r e q u i c k l y made adjustments to a r a p i d l y changing m a r k e t e n v i r o n -ment o c c a s i o n e d by the action of a competitor, government body, change in the consumer's status attitudes, and the l i k e " ( K e l l e y , 1968, p. 10). On the other hand, s t r a t e g i c d e c i s i o n s commit m a j o r r e s o u r c e s of the f i r m f o r a r e l a t i v e l y long time and r e f l e c t the b a s i c goals of the b u s i n e s s . A t e r m often used i n t e r c h a n g e a b l y with str a t e g y is p o l i c y . In its p r e c i s e f o r m , p o l i c y has come to mean a s p e c i f i c r esponse to s p e c i f i c r e p e t i t i v e s i t u a t i o n s . A p o l i c y is u s u a l l y an e x p l i c i t w r i t t e n statement of pr o c e d u r e to be im p l e m e n t e d when a p a r t i c u l a r situation a r i s e s . " P o l i c y is a contingent d e c i s i o n " (Ansoff, 1965, p. 119). Strategy, however, i s u s u a l l y i m p l i c i t and takes the f o r m of a cou r s e of ac t i o n . P o l i c y statements are the means by which a strat e g y is instituted and manoeuvered. Since s t r a t e g i e s a r e a means to a c h i e v i n g goals and since goals can be p e r s o n a l as w e l l as c o l l u s i v e , it follows that s t r a t e g i e s a r e e x t r e m e l y complex i n nature and are i n constant i n t e r a c t i o n with one another. A c t o r s with s i m i l a r goals may employ different s t r a t e g i e s to 41 achieve t h e i r ends; on the other hand, a c t o r s with e n t i r e l y u n r e l a t e d goals may employ i d e n t i c a l s t r a t e g i e s . F i r m s and in d i v i d u a l s attempting to se c u r e t h e i r own goals come into d i r e c t c o n f l i c t with opposing s t r a t e g i e s . T h i s is patently obvious i n the business w o r l d where the goal may be to capture part of a competitor's market. In fact, f r e e e n t e r p r i s e i s built on the p r e m i s e that m a r k e t i n g s t r a t e g i e s do ex i s t and w i l l come into c o n f l i c t . It is i n t e r e s t i n g to observe how c o r p o r a t e management uses s t r a t e g y to change the environment and how e n v i r o n m e n t a l change causes a shift i n strategy. The m o d e r n f i r m may be viewed as a "p u r p o s i v e , goal-seeking o r g a n i z a t i o n " (Ansoff, 1969, p. 14) which is designed and guided by a management. The management p r o c e s s i t s e l f c o n s i s t s of three l e v e l s of d e c i s i o n - m a k i n g : operations, a d m i n i s t r a t i o n , and strat e g y . O p e r a t i n g or l o g i s t i c s d e c i s i o n s are co n c e r n e d with the p h y s i c a l functioning of the f i r m . Such things as accounting, o r d e r i n g , b i l l i n g , p r o c e s s i n g , etc. are handled by o p e r a t i o n a l d e c i s i o n s . M o s t of these situations are governed by e x p l i c i t routine p r o c e d u r e and the d e c i s i o n s a r e m e r e l y a job of d i s c r i m i n a t i n g key c r i t e r i a . A d m i n i s t r a t i v e d e c i s i o n s are co n c e r n e d with the s t r u c t u r a l pattern of job r e s p o n s i b i l i t y and duty. T a s k s are designated and operations a r e seen to be c o - o r d i n a t e d and e f f i c i e n t . P e r s o n s occupied with this l e v e l of management p r o c e s s are r e s p o n s i b l e f o r executing s t r a t e g i c d e c i s i o n s u s i n g p o l i c y statements as g u i d e l i n e s . "The s t r a t e g i c d e c i s i o n a r e a is concerned with e s t a b l i s h i n g the 42 r e l a t i o n s h i p between the f i r m and its e n v i r o n m e n t " (Ansoff, 1969, p. 14). T h e s e d e c i s i o n s e s t a b l i s h the fundamental links between a c o r p o r a t i o n and , the outside w o r l d . Questions like what product? what m a r k e t ? what r e s o u r c e a l l o c a t i o n s ? are dealt with in s t r a t e g i c d e c i s i o n s . Strategy is the b a s i c determinant in the s u c c e s s or f a i l u r e of the f i r m . B ecause of t h e i r i m p o r t a n c e , it would s e e m that s t r a t e g i c d e c i s i o n s should r e c e i v e top management's highest p r i o r i t y . H i s t o r i c a l a n a l y s i s , however, shows us that this is not the case. Management man i f e s t s an i n t e r e s t i n s t r a t e g y only p e r i o d i c a l l y (Chandler, 1962).^ Many f i r m s a l s o exhibit a 'lag response' to e n v i r o n m e n t a l change. Such f i r m s f a i l to anticipate or r e a c t to an e n v i r o n m e n t a l change which n e c e s s i t a t e s a m o d i f i c a t i o n i n strategy. Only when c u r r e n t s t r a t e g i e s a r e seen to be r e s p o n s i b l e f o r f a i l u r e does the company shift i t s modus operandi. T y p i c a l l y the f i r m seeks its cure by a change i n o p e r a t i o n s , then i n o r g a n i z a t i o n a l r e s h u f f l e , and f i n a l l y through s t r a t e g i c o v e r h a u l . P ower of a l l three l e v e l s of d e c i s i o n r e s i d e s i n one cadre of the o r g a n i z a t i o n -- top management. Management i n v a r i a b l y tends to give ^In Strategy and S t r u c t u r e , C h a n d l e r p r e s e n t s an h i s t o r i c a l a n a l y s i s of the growth and development of a number of f i r m s , but concentrates on G e n e r a l M o t o r s , DuPont, Sears-Roebuck, and Standard O i l of New J e r s e y . The m a i n point of the book i s that c o r p o r a t e s t r u c t u r e should p r o v i d e an a d m i n i s t r a t i v e environment i n which a p r o p e r balance of management attention can be maintained. 43 operating decisions top p r i o r i t y . ^ It is for this reason that environment changes are perceived i n d i r e c t l y through the impact that they have on the l o g i s t i c process. Decision needs signalled by the l o g i s t i c processes are analyzed s e r i a l l y , i n i t i a l l y as operating d e f i c i e n c i e s , secondly as admini-s t r a t i v e , and t h i r d l y as strategic (Ansoff, 1969, p. 17). Although s e r i a l decision-making is c h a r a c t e r i s t i c of most business f i r m s , there are other methods of perceiving environmental change. To reduce 'lag response' f i r m s may practice anticipatory response i n which the f i r m seeks through forward planning to foresee significant changes i n the environment. Here the firm's contact with the outside world is direct and response to strategic challenge is quicker. Even more advanced is s e l f - t r i g g e r e d response where the f i r m is continually searching for growth and expansion opportunities. The complexity of this topic is increased when one r e a l i z e s that the l i t e r a t u r e offers no typology of strategy; i n fact, most f i r m s are unaware of the fact that they follow a p a r t i c u l a r corporate strategy. T i l l e s (1969) makes a plea for e x p l i c i t corporate strategy: The need for an e x p l i c i t strategy stems from two key attributes of the business organization: f i r s t , that success depends on people working together so that their efforts are mutually r e i n f o r c i n g ; and second, that this be accomplished in the context of rapidly changing conditions. In the absence of an e x p l i c i t statement of strategy, obsolete patterns of corporate behavior are e x t r a o r d i n a r i l y di f f i c u l t to modify. ^Ansoff (1969) gives four reasons why operating decisions receive p r i o r i t y : 1) they are routine and repetitive, 2) they are automatically brought to top managers attention by lower managers, 3) they are frequent and i n large number, 4) top managers find them f a m i l i a r by virtue of t r a i n i n g at lower levels in the f i r m (pp. 15-16). 44 Where there is no clear concept of what current strategy-i s , the determination of what might be changed, and why, must rest on either subjective or intuitive assessment, (p. 181) Although T i l l e s requests that strategy should be a f o r m a l , e x p l i c i t statement, he never presents a typology of the different kinds of strategies that a f i r m may adopt. The l i t e r a t u r e discusses a whole host of strategic decision processes, ranging from the important product-market mix (Sloan, 1964; Borden, 1964) to intelligence and anti-espionage strategies (Kelley, 1968). Marketing strategy is only one of the many types of strategies i n which a corporation may engage i t s e l f . The f i e l d of marketing strategy i s of s p e c i a l concern to companies who are engaged d i r e c t l y in the r e t a i l i n g of goods and s e r v i c e s . Marketing Strategy A f i r m engaged in marketing is acutely aware of the environment. As stated e a r l i e r , the more unstable the market becomes the more a f i r m has to adjust its strategy. This is especially true i n the present r e t a i l i n g market where customers are better informed, have more money, and demand wider ranges and var i e t i e s of products. In order to compete suc c e s s f u l l y the management must keep its eye on the market in anticipation of adverse competitive tactics and strategies. Today, marketing strategy can make or break a f i r m . F o r example, the success of the Wilkinson r a z o r blade and Playboy i l l u s t r a t e s the dramatic impact that a new product concept may have on the fortunes of a company ( T i l l e s , 1969). Mere 45 tenacity can o c c a s i o n a l l y be the c o r r e c t f o r m u l a . ^  Whatever the winning combination may be, the m a r k e t i n g s e c t o r of a c o r p o r a t i o n is u s u a l l y f i r s t to notice a change i n e n v i r o n m e n t a l conditions. It is quite probable that m a r k e t i n g s t r a t e g i e s , i n t u r n , have the most immediate effect on the environment. In an a r t i c l e entitled, "marketing Myopia, " L e v i t t (I960) says that even when e n t e r p r i s e s become s u c c e s s f u l they a r e apt to slump because of th e i r indulgence i n outmoded m a r k e t i n g s t r a t e g i e s . L e v i t t notes four conditions that tend to f o s t e r decay i n the m i d s t of plenty: 1) r e l i a n c e on population growth, 2) confidence i n the i n f a l l i b i l i t y of one's c u r r e n t product, 3) r e l i a n c e of cost e f f i c i e n c i e s of mass pr o d u c t i o n , 4) p r e -occupation with products that lend themselves to c a r e f u l l y c o n t r o l l e d s c i e n t i f i c e x perimentation, improvement, and manufacturing cost r e d u c t i o n . n Of the l a r g e body of l i t e r a t u r e that exists on m a r k e t i n g s t r a t e g y few authors use the same g e n e r i c heading to c l a s s i f y the types of s t r a t e g i c ^An e x c e l l e n t example i s p r o v i d e d by the case of the S y l v a n i a C o r p o r a t i o n i n its s u c c e s s i n f l u o r e s c e n t light s t a r t e r s . A t the time a s e l f - s t a r t i n g unit was introduced, light s t a r t e r s were a h i g h l y competitive i t e m of low p r o f i t a b i l i t y . In the face of the apparent p r o s p e c t of d e c l i n i n g demand, s e v e r a l of the m a j o r s u p p l i e r s decided to get out of the light s t a r t e r b u s i n e s s . S y l v a n i a , on the other hand, saw i n these actions a pr o s p e c t of d e c l i n i n g capacity which more than offset the decline i n demand. It judged the demand to capacity r a t i o to be f a v o r a b l e , stayed i n the bus i n e s s , and turned it into a p r o f i t a b l e i t e m . (Ansoff, 1965, p. 189). ?See A l d e r (1967), B e l l (1966), Cox et a l (1964), B u r s k and Chapman (1964) to mention but a few. 46 moves a f i r m may make. Included below are five of the most common d i v i s i o n s of m a r k e t i n g stra t e g y . Because it is i m p o s s i b l e to include a l l the t a c t i c s a f i r m may employ under each str a t e g y only a few important ones w i l l be examined. Strategy of innovation. Develop new products; devise new s e r v i c e s ; find new ways of d i s t r i b u t i n g products; d i s c o v e r new and c r e a t i v e methods of p r o m o t i n g them. Innovation of a new product is frequently the most s u c c e s s f u l competitive t a c t i c because i t o f f e r s the p o t e n t i a l of r a d i c a l l y changing competitive r e l a t i o n s h i p s . It can do this either by c r e a t i n g new product concepts which set the company apart, or by c r e a t i n g a new m a r k e t or m a r k e t i n g concept which has the same effect. The opportunities or innovation with r e s p e c t to m a r k e t are no l e s s than with r e s p e c t to p r o d u c t s . T h i s can be seen in the automotive i n d u s t r y where c a r d e a l e r s c r e a t e d the i n s t r u m e n t of time payment to allow consumers the money to buy expensive c a r s . T h i s m a r k e t i n g t a c t i c is now u n i v e r s a l l y a p p l i e d to a l m o s t e v e r y c o nsumer good. In fact, c a r r y i n g charges a r e now an i mportant s o u r c e of income to many r e t a i l e r s . The i n j e c t i o n of newly d i s c o v e r e d elements into an e x i s t i n g s i t u a t i o n t r a n s f o r m s the sit u a t i o n , and a new pattern r e s u l t s . " T h u s ? the function of s e l f - s e r v i c e i n a s t o r e , i n combination with an adjacent p a r k i n g lot, r e s u l t s in a new i n s t i t u t i o n a l f o r m which we know as the s u p e r m a r k e t . . . " (Barnet, 1964, p. 57). The new f o r m generates opposition, f o r c e s emulation, and f o s t e r s f u r t h e r innovating. Department st o r e s open suburban branches i n conjunction with s u p e r m a r k e t s thus c r e a t i n g shopping 47 c e n t e r s t o t a k e a d v a n t a g e o f h i g h p o p u l a t i o n s o f s h o p p e r s i n t h e s u p e r -m a r k e t s . E v e n t h e s m a l l e r c o m p e t i n g g r o c e r y s t o r e s m u s t e n t e r t h i s t y p e o f c o m p e t i t i o n a n d i n r e s p o n s e o f f e r t r a d i n g s t a m p s t o c o m p e n s a t e f o r l o s s o f b u s i n e s s t o t h e s h o p p i n g c e n t e r s . I n s h o r t , i n n o v i s t i c c o m p e t i t i o n n o t o n l y b r i n g s a b o u t t h e r e a l l o c a t i o n o f k n o w n r e s o u r c e s , b u t a l s o e n c o u r a g e s a n d e v e n c o m p e l s c o n t i n u o u s r e s e a r c h f o r n e w p r o d u c t s , n e w a p p l i c a t i o n s , a n d n e w m e t h o d s . I t i s a f o r c e w h i c h t h r e a t e n s t h e s t a t u s q u o , a n d a s s u c h c a u s e s a c h a n g e i n t h e e n v i r o n m e n t . S t r a t e g y o f e f f i c i e n c y . P r o v i d e c o n v e n i e n c e a n d s p e e d w i t h w h i c h g o o d s m a y b e m a d e a v a i l a b l e . T h i s s t r a t e g y c a n c o v e r a v e r y w i d e r a n g e o f t a c t i c s f r o m h o w t o a r r a n g e c a n s o n s t o r e s h e l v e s t o p l a c i n g a l o c a l d e a l e r s h i p i n a c i t y . I n f a c t , o n e o f t h e e a r l i e s t a n d m o s t s u c c e s s f u l s t r a t e g i e s o f t h i s k i n d w a s t h a t o f S e a r s - R o e b u c k w h o i n i t i a t e d n a t i o n a l c a t a l o g u e p u r c h a s i n g . B e f o r e d i s c u s s i n g t h i s s t r a t e g y m o r e f u l l y i t m u s t b e r e a l i z e d t h a t i n t o d a y ' s w o r l d , t i m e i s o f t e n e q u a t e d w i t h m o n e y . B y m i n i m i z i n g t h e c o n s u m e r ' s p u r c h a s i n g t i m e , t h e e n t r e p r e n e u r i s , i n e f f e c t , c u t t i n g t h e p r i c e o f t h e p r o d u c t . B e c a u s e t h e p r i c e c u t i s a c c o m p l i s h e d b y i n d i r e c t m e a n s , i . e . m o r e c o n v e n i e n t s e r v i c e o r l e s s s e a r c h t i m e , t h i s f o r m o f m a r k e t i n g s t r a t e g y w i l l b e d i s c u s s e d s e p a r a t e l y f r o m t h e m o r e d i r e c t m e t h o d o f l o w e r i n g t h e l i s t e d p u r c h a s e p r i c e o f t h e p r o d u c t . I n t h e l a s t a n a l y s i s , t h e s t r a t e g y o f e f f i c i e n c y i s r e a l l y o n e o f m i n i m i z a t i o n o f t o t a l c o s t s o n b e h a l f o f t h e c o n s u m e r . 48 K e l l e y (1958) states that c o n sumers must achieve an acceptable balance between "commodity c o s t " and "convenience cost. " Commodity costs are the sums of money paid to the r e t a i l e r i n exchange f o r the good. Convenience costs are the sums of money paid out for expenses that a r e incident to the pur c h a s e (e.g. gaso l i n e , p a r k i n g , postage, d e l i v e r y charge, financing charge, bus f a r e , etc. ), plus the expenditure of time and p h y s i c a l and nervous energy that must be made to purchase the good. T o m a x i m i z e e f f i c i e n c y , buyers must organize t h e i r p u r c h a s e s into c l u s t e r s through the device of m u l t i - p u r p o s e shopping t r i p s that reduce the time and effo r t r e q u i r e d f o r i n d i v i d u a l t r a n s a c t i o n s . T h e y concentrate t h e i r p u r c h a s i n g g e o g r a p h i c a l l y by going to s t o r e s and shopping centers where they can find a wide v a r i e t y of goods and s e r v i c e s within a s m a l l a r e a . "Convenience is one of the s e r v i c e s some types of r e t a i l s t o r e s p r o v i d e for t h e i r c u s t o m e r s " (Cox, 1959, p. 360). Co x is saying that c o n sumers may, in fact, be w i l l i n g to pay money in exchange f o r "convenience. " T h i s is witnessed e v e r y day when we see people p u r c h a s e c i g a r e t t e s f r o m a d i s p e n s i n g machine when they could e a s i l y buy them for 4 cents le s s i n a r e t a i l s t o r e . People put a r e a l p r i c e on the s e r v i c e and convenience that they r e c e i v e . The impact of this to m a r k e t i n g str a t e g y o c c u r s when a f i r m decides that i t w i l l offer added convenience or s e r v i c e , and yet s e l l the product for the same p r i c e as a competitor. The consumer r e a l i z e s a 8 A l s o s e e K e l l e y (1955) on " R e t a i l S t r u c t u r e of U r b a n E c o n o m y . " 49 r e a l saving. F i r m s a l s o compete by of f e r i n g d i f f e r e n t types and dif f e r e n t degrees of s e r v i c e . T h i s is then a case of product d i f f e r e n t i a t i o n , and the effect of s e r v i c e and convenience on the p r i c e cannot be m e a s u r e d . Connected to this concept of m a r k e t i n g e f f i c i e n c y ( i . e . m i n i m i z a -tion of consumers r e a l and p e r s o n a l costs) is the p r a c t i c e of p r o v i d i n g i n t e r n a l linkages and c o m p l i m e n t a r i t y f o r the shopper. The best example of i n t e r n a l linkage i s , of c o u r s e , the department store where a woman who wishes to buy a clothing outfit can f i n d , besides h e r ba s i c a t t i r e , a l a r g e sample of p u r s e s , shoes, hats, gloves, etc. which she deems as n e c e s s a r y additions to the o r i g i n a l p u r c h a s e . A l l these connected goods a r e found within easy a c c e s s under one roof or perhaps on one f l o o r , so as to m i n i m i z e h e r s e a r c h time. C o m p l i m e n t a r i t y is best demonstrated by the planned shopping center which contains a l a r g e number of s m a l l shops each c a r r y i n g only a few products but which are highly a c c e s s i b l e to one another. In this case a woman shopper may have to go to two or three shops to f i l l h e r wardrobe r e q u i r e m e n t s . Although Cox may be c o r r e c t about "convenience" to a c e r t a i n degree, he is m i s t a k e n when he says that the c onsumer "endeavors to m a x i m i z e the r e t u r n he r e c e i v e s i n a l l f o r m s " (1959, p. 3 6 l ) . M a r t i n e a u (1958a) points out that there is " C l e a r l y . . . a f o r c e operative in the d e t e r m i n a t i o n of the store's c u s t o m e r body besides the obvious f u n c t i o n a l f a c t o r s of l o c a t i o n , p r i c e ranges, and m e r c h a n d i s e o f f e r i n g s " (p. 47). He c a l l s this other f o r c e "store p e r s o n a l i t y " but what he i s r e a l l y t a lking about is m a r k e t segmentation. T h i s topic is d i s c u s s e d in a following s e c t i o n and 50 is only brought up here to caution the r e a d e r that the str a t e g y of convenience is more complex than might be imagined. Although its l o c a t i o n , quality of goods, and p r i c e of goods are comparable f a v o r a b l y , people with a $100,000 home don't u s u a l l y buy household goods f r o m the S a l v a t i o n A r m y T h r i f t Store. It i s i n t e r e s t i n g to note that business f i r m s do not always choose a l o c a t i o n f o r a store that w i l l m a x i m i z e that store's c u s t o m e r potential. A l d e r s o n and Shapiro (1964) cite the case where a f i r m must choose between "o p t i m a l site l o c a t i o n and o p t i m a l network ex p a n s i o n " (p. 196). O p t i m a l expansion of a network f a v o r s the most e f f i c i e n t use of other m a r k e t i n g t a c t i c s such as a d v e r t i s i n g and c r e d i t c a r d s but business potential at an i n d i v i d u a l site may have to be s a c r i f i c e d i n o r d e r to achieve p r o p e r m a r k e t r e p r e s e n t a t i o n . Most l a r g e c o r p o r a t i o n s a r e faced by the p r o b l e m in t h e i r evaluation of strategy. Opting f o r the best site w i l l p r o v i d e i m m e diate s h o r t - r u n convenience to a l o c a l c u s t o m e r , while the network stra t e g y is a long-run move a i m e d at a much broader market. F o r l a r g e national and i n t e r n a t i o n a l f i r m s , like S h e l l , the network option has worked w e l l . A n o t h e r e f f i c i e n c y s t r a t e g y is the l o c a t i o n of one-stop shopping outlets i n positions that m i n i m i z e the consumer's 'costs. 1 In low o r d e r automobile shopping i t has been o b s e r v e d that the most s u c c e s s f u l r e t a i l s i t e s are those that m i n i m i z e the motorist's time and m a x i m i z e his con-venience (Claus & Rothwell, 1970). Most often these outlets c a r r y products that have a low c r o s s e l a s t i c i t y of demand. Although i n d i v i d u a l products may be higher p r i c e d than i n shopping centers the added convenience of l o c a t i o n m o r e than makes up f o r this p r i c e d i f f e r e n t i a l . 51 These automobile-oriented stores are n o r m a l l y located on major t r a f f i c a r t e r i e s and are identified i n the l i t e r a t u r e as "ribbon developments" ( B e r r y , 1959). Before leaving this section on strategy a b r i e f word must be said about credit cards. The influence of this innovation is only being recognized today and its f u l l significance is far from r e a l i z e d . The appeal of the credit card must come under the strategy of convenience. Although the credit card may eventually cost its holder more (interest on back payments, etc.) than paying i n straight cash, its benefit is derived from its ease of use and the convenience it affords the user i n not having to c a r r y money or balancing in-the -pocket funds. Strategy of p r i c e . Provide comparable or substitute goods at a lower p r i c e than competition. P r i c e strategy being the most common and usually the most effective method of competition is w e l l developed i n the l i t e r a t u r e (see Bursk &: Chapman, 1964; Enis & Cox, 1969; Cox et a l , 1964). A l m o s t every issue of marketing journals contains at least one a r t i c l e on how to a r r i v e at a p r i c i n g strategy. The f i r m with the lowest production costs, more efficient management, and best channelling system, can provide goods at a lower price than the competitors, and should therefore have the largest share of the market. In actual fact, however, the usual market situation is one of price leadership, where the large majority of producers or s e l l e r s market the same good at i d e n t i c a l p r i c e s . Cassady (1954) distinguishes three types of p r i c e leadership; 52 1. B a r o m e t r i c - f i r m p r i c e l e a d e r s h i p , where adherence by nonleaders r e s t s on s k i l l e d and t i m e l y adjustments of p r i c e s to m arket conditions by some one competitor. 2. D o m i n a n t - f i r m l e a d e r s h i p , where s m a l l competitors exist on s u f f e r e n c e and f u l l y r e a l i z e t h e i r v u l n e r a b i l i t y to d o m i n a n t - f i r m action, hence adhere. 3. P r i c e l e a d e r s h i p i m plemented by group a c t i o n , where vendors, d i s s a t i s f i e d with the r e s u l t s of a competitive l e a d e r s h i p scheme, employ some type of c o l l u s i v e a r r a n g e m e n t to i n s u r e e f f e c t i v e n e s s , (pp. 95-99) C a s s a d y uses the p e t r o l e u m i n d u s t r y as an example of the b a r o m e t r i c type of p r i c e l e a d e r s h i p . In some instances the p r i c e of the product, although important to the p r o d u c e r , is not of m a j o r s i g n i f i c a n c e to the consumer or i n d i v i d u a l s e l l e r . The c r o s s e l a s t i c i t y of demand f o r some goods i s so low that an i n d i v i d u a l d e a l e r may not even check his competitor's p r i c e . T h i s is e s p e c i a l l y true for such items as food, beverages, tobacco, g a s o l i n e , e t c . where a s m a l l drop in p r i c e by one r e t a i l outlet w i l l not a p p r e c i a b l y affect the m a r k e t as a whole. With such items as f u r n i t u r e , houses, automobiles, and even clothing c u s t o m e r s a r e m o re aware of p r i c e d i f f e r e n t i a l s and seek to find t h e i r best buy. In many instances p r i c e competition is p r o h i b i t e d by law, f o r example, public u t i l i t i e s , t r u c k i n g , a i r l i n e s , etc. One unusual case of p r o h i b i t i o n of p r i c e competition is r e c o r d e d i n M a s s a c h u s e t t s i n 1956 where G e n e r a l E l e c t r i c sought a court injunction against i n d i v i d u a l d e a l e r s for s e l l i n g G.E. products at a lower p r i c e than s i m i l a r products of other brands were being s o l d (Barnet, 1964, p. 50). 53 Boston. M a r c h 8. The f u l l bench of the M a s s a c h u s e t t s Supreme J u d i c i a l C o u r t r u l e d that the State f a i r trade law is v a l i d . . . . The court . . . states G e n e r a l E l e c t r i c is entitled to an injunction r e s t r a i n i n g the defendent f r o m s e l l i n g the plaintiff's s m a l l appliances at lower p r i c e s than those now, or h e r e a f t e r , p e r m i t t e d in its f a i r trade a g r e e -ment with other r e t a i l e r s . ( R e t a i l i n g D a i l y , M a r c h 9, 1956) P r i c e competition though effective is used only i n s p e c i f i c c i r c u m s t a n c e s . Strategy of competitive d i f f e r e n c e . P r o v i d e unusual or d i s t i n c t i v e goods, or goods that appear d i s t i n c t i v e to the c u stomer. F r o m a st r a t e g y viewpoint, product d i f f e r e n t i a t i o n is s e c u r i n g a m e a s u r e of c o n t r o l over the demand f o r a product by a d v e r t i s i n g or p r omoting d i f f e r e n c e s between a product and the products of competing s e l l e r s . It is b a s i c a l l y the r e s u l t of s e l l e r s d e s i r e s to e s t a b l i s h f i r m m a r k e t positions and/or to insulate t h e i r business against p r i c e competition. D i f f e r e n t i a t i o n tends to be c h a r a c t e r -i z e d by heavy use of a d v e r t i s i n g and p r o m o t i o n and to r e s u l t i n p r i c e s that are somewhat above e q u i l i b r i u m l e v e l s a s s o c i a t e d with p e r f e c t l y competitive conditions. It may be c l a s s i f i e d as p r o m o t i o n a l stra t e g y . (Smith, 1956, p. 6) T h i s is r e a l l y the w o r l d of the M a d i s o n Avenue a d v e r t i s i n g f i r m s who m a s t e r m i n d the m u l t i m i l l i o n a d v e r t i s i n g campaigns f o r soap, c i g a r e t t e s , beer, etc. A company that can e s t a b l i s h a r e a l competitive d i f f e r e n c e may often c o r n e r a segment of the market. F o r example, A m e r i c a n M o t o r s was able to s u r v i v e and p r o s p e r by d i f f e r e n t i a t i n g its product f r o m that of G e n e r a l M otors and F o r d ^ and c u l t i v a t i n g a consumer subgroup, whereas S t u d e b a k e r - P a c k a r d p e r s i s t e d in t r y i n g to compete d i r e c t l y with the l a r g e f i r m s and f a i l e d . 54 In today's consumer market, competitive d i f f e r e n c e o c c u r s i n a l m o s t e v e r y r e t a i l product. It has been the oligopolist's a l t e r n a t i v e to p r i c e competition. Strategy of m a r k e t segmentation. D i r e c t i n g a product at a p a r t i c u l a r s o c i o - e c o n o m i c group. M a r k e t segmentation . . . c o n s i s t s of viewing a heterogeneous m a r k e t as a number of s m a l l e r homogeneous ma r k e t s i n response to d i f f e r i n g product p r e f e r e n c e s among imp o r t a n t • m a r k e t segments. It is attributable to the d e s i r e s of c o n sumers or u s e r s f o r m o r e p r e c i s e s a t i s f a c t i o n of t h e i r v a r y i n g wants. L i k e d i f f e r e n t i a t i o n , segmentation often involves s u b s t a n t i a l use of a d v e r t i s i n g and promotion. T h i s is to i n f o r m m a r k e t segments of the a v a i l a b i l i t y of goods or s e r v i c e s p r o d u c e d f o r or p r e s e n t e d as meeting t h e i r needs with p r e c i s i o n . U n der these c i r c u m s t a n c e s , p r i c e s tend to be somewhat c l o s e r to p e r f e c t l y competitive e q u i l i b r i u m . M a r k e t segmentation is e s s e n t i a l l y a m e r c h a n d i s i n g stra t e g y . (Smith, 1956, p. 6) T h i s facet of m a r k e t i n g s t r a t e g y is r e s p o n s i b l e f o r the s u c c e s s of many m o d e r n f i r m s . M y e r s and N i c o s i a (1968) note that, " M a r k e t i n g management p o l i c i e s , s t r a t e g i e s and t a c t i c s depend p r o g r e s s i v e l y on i d e n t i f i c a t i o n of u s e f u l m a r k e t segments, p a r t i c u l a r l y i n a s o c i e t y becoming m o re a f f l u e n t " (p. 182). In recent y e a r s the concept of m a r k e t segmenta-tion has r e s u l t e d in a p r o l i f e r a t i o n of s i m i l a r p r o ducts. In the c o s m e t i c s f i e l d , f o r i n s t a n c e , c o n s i d e r what m a n u f a c t u r e r s of make-up and s k i n - c a r e p r e p a r a t i o n s have achieved. Once upon a time there was a product c a l l e d c o l d c r e a m . Now col d c r e a m , although i t s t i l l e x i s t s , has been "spun o f f " into foundation, c l e a n s i n g , vanishing, n o u r i s h i n g , conditioning, hormone, ast r i n g e n t , l a n o l i n , m a r r o w , and wr i n k l e c r e a m . S i m i l a r situations have o c c u r r e d with a multitude of other products and s e r v i c e s . 55 A n i n t e r e s t i n g example of m a r k e t segmentation is the case of C o n t r o l Data. IBM, the most dominant company i n the f i e l d , had a l a r g e and s k i l f u l s a l e s f o r c e and a broad range of c u s t o m e r s e r v i c e s . The cost of supporting these, however, was built into the computers p r i c e . C o n t r o l Data r e c o g n i z e d that u s e r s of l a r g e computers are capable of developing t h e i r own software and p r o v i d i n g t h e i r own s e r v i c e s . A good machine at a competitive p r i c e was t h e r e f o r e p o s s i b l e as a c o m m e r c i a l s u c c e s s f o r a s m a l l company. Once C o n t r o l Data launched it s attack on the m a r k e t segment, I B M could not counter its p r i c e r e q u i r e m e n t s because of its own r e q u i r e m e n t s f o r c o n s i s t e n c y a c r o s s a broad product range. C o n t r o l Data was t h e r e f o r e able to grow r a p i d l y , so r a p i d l y , i n fact, that is has now expanded beyond its o r i g i n a l m a r k e t segment and must r e v i s e its s t r a t e g y ( T i l l e s , 1969, p. 188). M a r k e t segmentation a l s o o c c u r s i n the urban r e t a i l s t r u c t u r e . M a r t i n e a u (1958a) points out that " r e g a r d l e s s of the a b i l i t y to pay, a l l shoppers seek s t o r e s whose total image i s acceptable and appealing to them i n d i v i d u a l l y " (p. 49). He goes on to point out that the shopping s i t u a t i o n includes many things not d i r e c t l y a s s o c i a t e d with s p e c i f i c i t e m s but c l o s e l y connected to v a r i o u s patterns of c o nsumer behavior. "As the shopper fits the s t o r e s into her planning, she manipulates store images i n her m i n d o In a l a r g e part, where she goes and what she buys depends on the subjective attributes that are a p a r t of the store's image:- atmosphere, status, p e r s o n n e l , other c u s t o m e r s " (p. 55). In another a r t i c l e on " S o c i a l C l a s s e s and Spending B e h a v i o r " M a r t i n e a u (1958b) c l a i m s that e n t r e p r e n e u r s must design t h e i r r e t a i l sites to fit the demands of a s e l e c t e d m a r k e t segment. 56 A s yet, l i t t l e work has been done toward r e t a i l site s e l e c t i o n and design on the basis of m a r k e t segmentation although it is obvious that f i r m s i n t u i t i v e l y p r a c t i c e this strategy. F i r m s a l s o use linkage and c o m p l e m e n t a r i t y i n conjunction with m a r k e t segmentation to promote s a l e s . A l a r g e expensive downtown hot e l , f o r example, w i l l have high p r i c e d j e w e l r y , f u r , and clothing shops within or in c l o s e p r o x i m i t y to the establishment, while l e s s expensive hotels a r e not l i k e l y to take advantage of this s i t u a t i o n . Where there is a n a t t r a c t i o n of a c e r t a i n s o c i a l segment to one place or one a r e a , f i r m s c a t e r i n g to the demands of that c l a s s w i l l l i k e l y e s t a b l i s h c o m p l e m e n t a r y b u s i n e s s e s near by. T h e r e i s a l s o what might be c a l l e d " c r o s s town linkage, " where people, no matter where they may be i n the c i t y , w i l l seek to find the type of e s t a b l i s h m e n t that agrees with t h e i r s o c i a l image. In a s t r a n g e e n v i r o n -ment, the reputation of the store's name or,the brand of the goods it s e l l s a r e often u s e d as c r i t e r i a f o r choosing the outlet. A f i r m that can c r e a t e a f a v o r a b l e image with a chain of s t o r e s may be able to obtain a c e r t a i n amount of c u s t o m e r lo y a l t y within a segment of the population. In gasoline s e r v i c e stations, f o r instance, Dupont (1954) has e s t i m a t e d that 20 per cent of a l l c u s t o m e r s a r e l o y a l to one brand of g a s o l i n e . Summary. The above d i s c u s s i o n on m a r k e t i n g s t r a t e g i e s is not intended to c o v e r the f i e l d ; but s i m p l y to demonstrate the s u b t l e t i e s of a highly complex topic. It must be r e a l i z e d that a f i r m may e m p l o y any number of these s t r a t e g i e s i n v a r y i n g degrees to a multitude o f p r o d u c t s . T o p r e d i c t the s u c c e s s of any combination of t a c t i c s has l a r g e l y been a 57 m a t t e r of business experience and luck. The adoption of a s p e c i f i c m a r k e t i n g s t r a t e g y is to a l a r g e degree a r e f l e c t i o n of how the f i r m p e r c e i v e s its environment. L i k e w i s e , the actions of the f i r m are m i r r o r e d in the environment, both p h y s i c a l l y and c u l t u r a l l y . Nature of M a r k e t i n g Strategy f o r ' O i l Companies • M a r k e t i n g s t r a t e g y i n the gasoline r e t a i l i n d u s t r y g e n e r a l l y takes two f o r m s -- p r i c e competition and n o n - p r i c e competition. ^  In fact, this s p l i t i n m a r k e t i n g s t r a t e g y is so b a s i c that most experts do not r e g a r d these two s t r a t e g i e s as mut u a l l y competitive * ^  (except i n instances of u n i l a t e r a l p r i c e wars). P r i c e competitive s e r v i c e stations compete d i r e c t l y with other p r i c e competitors while n o n - p r i c e stations are con-c e r n e d only with stations which use n o n - p r i c e t a c t i c s to s e c u r e a p o r t i o n of the market. Although these two groups do have an influence on one another, they a r e p r i m a r i l y p r e o c c u p i e d with t h e i r own segment of the m a r k e t and engage i n d i r e c t competition only r a r e l y . ^ Under n o r m a l conditions f i r m s in both groups use a number of su b - s t r a t e g i e s and t a c t i c s (product d i f f e r -entiation being the most common) to compete against t h e i r p e e r s . 9 ( B a i n , 1944; Buck, I960; C a s s a d y & Jones, 1951; C a s s a d y , 1964; C l a u s , 1969; C l a u s h Rothwell, 1970; F l e m i n g , 1954, 1966; M o r r o w , 1967; Stanford R e s e a r c h Institute, 1964; W a r r e n & Wong, 1961). l^See e s p e c i a l l y C a s s a d y & Jones, 1951; C a s s a d y , 1964; M o r r o w , 1967. l ^ S u c h r a r e o c c a s i o n s are c a l l e d p r i c e wars. In this case, a l l f i r m s use the same st r a t e g y -- p r i c e competition. 58 T o understand the nature of competition one must have some understanding of the m a r k e t demand f o r gasoline: 1. G a s o l i n e has only one main use, t h e r e f o r e consumers cannot put the product to other uses when its p r i c e is low, and thereby expand consumption. 2. T h e r e are no p r a c t i c a l substitutes f o r gasoline as a motor f u e l thus consumers cannot shift to other products when the p r i c e i n c r e a s e s . 3. G a s o l i n e is a product whose demand is d e r i v e d , thus c u s t o m e r s are not l i k e l y to use m o r e m e r e l y because the p r i c e i s low. 4. G a s o l i n e is j o i n t l y demanded with other products, so that its purchase accounts f o r only part of the t r a n s p o r t a t i o n expenses; thus a lower p r i c e is not l i k e l y to induce g r e a t e r consumption ( C a s s a d y & Jones, 1951, pp. 20-21). These c h a r a c t e r i s t i c s a r e consistent with the findings that the demand f o r gasoline i s v e r y i n e l a s t i c ; "a 10 per cent change i n the average r e t a i l p r i c e would r e s u l t i n something l i k e a 1. 3 per cent change in the quantity taken by c o n s u m e r s " (Cassady & Jones, 1951, p. 21). C r o s s e l a s t i c i t y of demand however i s a di f f e r e n t s t o r y . Up to a c e r t a i n point, a d i f f e r e n t i a l p r i c e i n gasoline exhibits a low c r o s s e l a s t i c i t y of demand. N o r m a l l y , only a s m a l l percentage of consumers look f o r b a r g a i n p r i c e s i n g a s o l i n e * 3 and a p r i c e d i f f e r e n t i a l of 2£ w i l l go 1 ^ D e r i v e d demand: the demand f o r one product i s c r e a t e d by the demand for another r e l a t e d product. F o r example, the demand f o r t y p e w r i t e r ribbon i s c r e a t e d by people who use t y p e w r i t e r s . 1 3 I t has been e s t i m a t e d that only 2 p er cent of m o t o r i s t s a r e ba r g a i n hunters (Business Week, M a r c h 21, 1953), but this w i l l v a r y f r o m m a r k e t to m a r k e t and may be as high as 10 - 12 per cent. 59 unnoticed by the g e n e r a l p u b l i c . In the event of a g r e a t e r d i f f e r e n t i a l , the demand curve becomes "kinked" and the c r o s s e l a s t i c i t y of demand r i s e s s h a r p l y . In such cases brand l o y a l t y is abandoned and m o t o r i s t s seek stations o f f e r i n g lower p r i c e s ( W a r r e n & Wong, 1961, p. 9). In economic t e r m s (meaning p r i c e competitive) the gasoline m a r k e t i s r e g a r d e d as a f o r m of 'imperfect competition. ' T h i s i s because there are r e l a t i v e l y few s e l l e r s and a la r g e number of b u y e r s . The ol i g o p o l i s t s i n the m a r k e t are c a l l e d " m a j o r s " ^ and each one has a con-s i d e r a b l e influence on the m a r k e t as a whole. The m a j o r s a r e u s u a l l y w e l l i n f o r m e d about m a r k e t conditions while the c o n s u m e r s are at a disadvantage because of t h e i r g e n e r a l lack of knowledge. G a s o l i n e i s b a s i c a l l y a homo-geneous product o f f e r i n g no a p p r e c i a b l e d i f f e r e n c e i n quality (although the m a j o r s promote the idea of product d i f f e r e n t i a t i o n ) . B e c a u s e of the nature of the in d u s t r y , c o n s i d e r a b l e c a p i t a l is needed to e s t a b l i s h an inte g r a t e d f i r m i n the market. T h i s tends to l i m i t the number of new e n t r i e s as w e l l as r e s t r i c t i n g the operating f i r m s f r o m shifting investments to take advantage of changing market conditions. In response to the above situation a p r a c t i c e of p r i c e l e a d e r s h i p has evolved. "The la r g e o i l companies, such as E s s o , Standard, and Standard O i l Company of Indiana, attempt to set p r i c e to obtain a target r e t u r n on i n v e s t m e n t " ( M c C a r t h y , I960, p. 633). Whether the 'target r e t u r n on investment' method i s used or not, governments have i n v e s t i g a t e d l ^ A m a j o r company has a co m p l e t e l y int e g r a t e d i n d u s t r i a l s t r u c t u r e and s e l l s at least 2 p e r cent of the total N o r t h A m e r i c a n market. 60 the o i l companies many times and a r e w e l l aware of the p r a c t i c e of p r i c e l e a d e r s h i p , but have done l i t t l e to d i s c o u r a g e it (Morrow, 1967). In summary, t h e r e f o r e , the s o - c a l l e d p r i c e l e a d e r s h i p i n the p e t r o l e u m i n d u s t r y boils down to the fact that some company in each t e r r i t o r y most of the time bears the onus of f o r m a l l y r e c o g n i z i n g c u r r e n t conditions . . . . In s h o r t , unless the s o - c a l l e d p r i c e l e a d e r a c c u r a t e l y i n t e r p r e t s b a s i c conditions and l o c a l conditions, it soon w i l l not be the leading m a r k e t e r . P r i c e l e a d e r s h i p does not mean that the p r i c e l e a d e r can set p r i c e s to get the m a ximum p r o f i t and f o r c e other m a r k e t e r s to c o n f o r m . (Dean, 1951, p. 432) The p e t r o l e u m i n d u s t r y i n N o r t h A m e r i c a is a v e r y complex phenomena which runs the f u l l gamut of r e t a i l - i n d u s t r i a l functions. Some act o r s s i n g l e handedly c o n t r o l e x t r a c t i o n , manufacturing, d i s t r i b u t i o n , and r e t a i l i n g of p e t r o l e u m pr o d u c t s , while other a c t o r s may act as independent b u s i n e s s m e n p e r f o r m i n g any one of a number of steps i n b r i n g i n g o i l products to; the p u b l i c . The r e t a i l aspect of the i n d u s t r y i t s e l f is a l s o complex and i n v o l v e s many d i v e r s e methods of m a r k e t i n g and m a r k e t i n g s t r a t e g i e s . B e s i d e s the 25 m a j o r companies i n N o r t h A m e r i c a there are a l s o s e v e r a l s u b s i d u a r y companies as w e l l as a number of independents. M a j o r companies often use s u b s i d u a r i e s as a front f o r p r i c e cutting. B e c a u se the names of stations and products are d i f f e r e n t , the company can cut p r i c e s without damaging the parent company's image. Subsiduary f i r m s do not r e q u i r e m a j o r c a p i t a l outlays nor do they tax the management of the parent e n t e r p r i s e . Independent stations s e l l r e l a t i v e l y unknown brands (except) l o c a l l y ) , s ometimes no brand i s given, or it may be the s e r v i c e station's p r i v a t e brand. T h e y u t i l i z e the high c r o s s e l a s t i c i t y of demand f o r gasoline 61 by cutting p r i c e s . D i r e c t n e s s of competition i n r e t a i l i n g is inf l u e n c e d by two independent v a r i a b l e s : s p a t i a l p r o x i m i t y and s i m i l a r i t y or d i s s i m i l a r i t y of product. "Because of d i f f e r i n g s e r v i c e r e q u i r e m e n t s , the im p o r t a n c e of the s p a t i a l element, and product p r e f e r e n c e s , c o n sumers c o n s i d e r only a few stations as completely s a t i s f a c t o r y substitutes f o r one another" ( C a s s a d y & Jones, 1951, p. 9 0 ) . ^ T h i s means that only a v e r y s m a l l number of stations are i n d i r e c t competition. The competition of stations which a r e d i s s i m i l a r in the quality of product, the type of s e r v i c e o f f e r e d , or the s p a t i a l s e p a r a t i o n are in s e m i d i r e c t o r i n d i r e c t competition --s e l l i n g a l i t t l e known brand of gasol i n e , p r o v i d i n g a lower quality of s e r v i c e , being situated i n a more i n a c c e s s i b l e p l a c e . P r i c e - c u t t e r stations o f f e r i n g a di f f e r e n t type of " p r o d u c t - s e r v i c e " but l o c a t e d i n close p r o x i m i t y to those with whom they i n d i r e c t l y compete, tend i n c r e a s i n g toward' gaining patronage at the expense of such i n d i r e c t r i v a l s as p r i c e d i f f e r e n t i a l s widen. However the effect of i n d i r e c t r i v a l r y takes place over a long time and i s not as great as i n the case of d i r e c t r i v a l r y ( C a s s a d y & Jones, 1951). D i r e c t r i v a l s , i n c l u d i n g p r i c e - c u t t e r s as w e l l as n o n - p r i c e c o m p e t i t o r s , may attempt to at t r a c t c u s t o m e r s by di f f e r e n t i a t i n g t h e i r products i n the m i n d of the buyer ( a d v e r t i s i n g and promotion), by p r o v i d i n g s u p e r i o r p r o d u c t - s e r v i c e (convenience, p e r s o n a l l^One cannot do a complete study of gasoline r e t a i l i n g without frequent r e f e r e n c e to C a s s a d y and Jones. 62 s e r v i c e , c r e d i t c a r d s ) , by making conc e s s i o n s f r o m the m a r k e t p r i c e (coupons, bonuses, give-aways, p r i z e s ) , or by any combination of these. N o n - p r i c e stra t e g y . In this f o r m of i n t r a - g r o u p r i v a l r y , the m atter of brand becomes c r i t i c a l . M o s t m a j o r s e s t a b l i s h an image on a n a t i o n a l or r e g i o n a l basis by extensive a d v e r t i s i n g and p r o m o t i o n . The concept is the same as i n the cigarette i n d u s t r y where an attempt is made to bu i l d product d i f f e r e n t i a t i o n in the m i n d of the consumer. A strong brand may have a l a r g e number of brand l o y a l patrons. Insofar as the p r i c e d i f f e r e n t i a l between brands is v e r y n o m i n a l or nonexistant, i n t r a - g r o u p r i v a l r y i s based on the strength of the brands as supported by d e a l e r s e r v i c e s . Thus a l l d e a l e r s a f f i l i a t e d with the p r o d u c e r attempt to support and enhance a s i n g l e brand image in o r d e r to take advantage of a b r a n d -conscious market. It is a l s o to the advantage of i n d i v i d u a l d e a l e r s to f o s t e r station l o y a l t y as w e l l as brand l o y a l t y by o f f e r i n g better quality s e r v i c e s and f a c i l i t i e s . It has been found that the r e v e r s e effect is a l s o true; brand l o y a l t y i s e s t a b l i s h e d by a m o t o r i s t because of the a f f i n i t y he may have f o r a p a r t i c u l a r station (Dupont, 1954). B e c ause t h e i r p o s i t i o n i n the m a r k e t f o r c e s them to emphasize other than p r i c e competitive t a c t i c s , m a j o r company stations have s t r e s s e d the quality of the p r o d u c t - s e r v i c e as w e l l as s e m i - p r i c e and n o n - p r i c e competitive methods. The most widely used and most s u c c e s s f u l t a c t i c e mployed by o i l companies is the establishment of high quality s e r v i c e stations i n h i g h l y a c c e s s i b l e l o c a t i o n s . T h i s is u s u a l l y a c c o m p a n i e d by a f u l l range of f a c i l i t i e s and adequate s e r v i c e s (Claus & Rothwell, 1970). 63 The p e r f o r m a n c e of any single m a j o r station to a l a r g e extent depends on a number of c r u c i a l i n t e r n a l site v a r i a b l e s as w e l l as e x t e r n a l site v a r i a b l e s (see quality r a t i n g guides -- K e l l e y , 1955; C a n o y e r , 1-946; B r i c k , 1968; C l a u s , 1969; C l a u s & Rothwell, 1970). Because these f i r m s do not compete through p r i c e they must r e l y on development of convenience and a c c e s s i b i l i t y . B e s i d e s the b a s i c s u b - s t r a t e g i e s of product d i f f e r e n t i a t i o n and e f f i c i e n c y most m a j o r f i r m s employ a number of other moves to a t t r a c t patronage. S p e c i a l feature p r i c e s on t i r e s , b a t t e r i e s , and a c c e s s o r i e s ( T B A ) i s a competitive weapon. A l s o , the use of give-aways, coupons, bonuses, p r i z e s , contests, etc. i s standard p r o m o t i o n a l p r a c t i c e . The use of g i m m i c k s of this type u s u a l l y takes one of three f o r m s : 1) there is the game which appeals to the gambling i n s t i n c t of the c u s t o m e r . Contests a r e set up i n which the c u s t o m e r must r e t u r n to the same station or same company i n o r d e r to i n c r e a s e his chances of winning a p r i z e . The consumer is motivated by the hope of something f o r nothing. 2) Give-aways, bonuses, and coupons are an i n d i r e c t method of cutting p r i c e . F o r the r e g u l a r p r i c e of g a s o l i n e , the customer r e c e i v e s a rebate i n the f o r m of m e r c h a n d i s e or refund c e r t i f i c a t e s . C a r e must be taken with this type of t a c t i c that it does not antagonize c o n s u m e r s . A t l a n t i c R i c h f i e l d set up a p r o m o t i o n where they gave away good quality c r y s t a l f o r coupons r e c e i v e d on a ten gal l o n p u rchase of gas o l i n e . In t h e i r attempt to have c u s t o m e r s buy at one station at r e g u l a r i n t e r v a l s , they i m p o s e d a l i m i t on the redemption time as w e l l as r e s t r i c t i n g the coupons' r e t u r n to the d i s t r i c t i n which it was i s s u e d . T he company, however, m i s c a l c u l a t e d the n o r m a l length of time between 64 p u r c h a s e s and the range of consumer buying. Customer's exceeding the time l i m i t or t r y i n g to redeem c e r t i f i c a t e s outside t h e i r buying d i s t r i c t were r e f u s e d the p r o m i s e d m e r c h a n d i s e . C u s t o m e r r e f u s a l and hence loss of brand l o y a l t y was a c o s t l y mistake f o r A t l a n t i c R i c h f i e l d . 3) Some outlets a l s o give discount p r i c e s on n o n - r e l a t e d products l i k e gardening, r e c r e a t i o n a l , and s p o r t i n g equipment. C u s t o m e r s are a t t r a c t e d to the station because of the low p r i c e s on other goods. T h i s has become a f a v o r i t e t a c t i c with stations that a l r e a d y offer gasoline at lower p r i c e s . A s p e c i a l note must again be made about c r e d i t c a r d s . T h i s innovation is used e x t e n s i v e l y by the m a j o r f i r m s and r e p r e s e n t s a turning point i n gasoline m a r k e t i n g stra t e g y . Although the c r e d i t c a r d affords the m o t o r i s t an added convenience, it i n t u r n demands a d i f f e r e n t type of site s e l e c t i o n . The o i l companies must not only continue to bu i l d high quality stations but a l s o must locate on the customer's m a i n pattern of automobile movement. A s p e c i f i c brand l o y a l t y o r brand p r e f e r e n c e can develop because a network of sites w i l l f i t into a customer's t r a v e l pattern even though the c u s t o m e r may own s e v e r a l c r e d i t c a r d s of d i f f e r e n t brands,, With i n c r e a s e d importance being p l a c e d on the a b i l i t y of the c u s t o m e r to always be within easy r e a c h of his c r e d i t c a r d station, the whole concept of m a r k e t i n g s t r a t e g y changes. Growing acceptance and use of c r e d i t c a r d s is f o r c i n g gasoline companies to e s t a b l i s h l a r g e r groups of brand l o y a l c o n s umers and to keep t h e i r l o y a l t y through p r o p e r networks of convenient and a c c e s s i b l e s t a t i o n s . When a c u s t o m e r finds that he cannot always use his c r e d i t c a r d when he wants to, o r i f he i s d i s p l e a s e d 65 with the s e r v i c e he r e c e i v e s at a brand station, then he may cease using his c a r d altogether. A c u s t o m e r lost to another c r e d i t c a r d brand is v e r y d i f f i c u l t to win back. The following example w i l l i l l u s t r a t e the strength of c r e d i t cards i n a m a r k e t si t u a t i o n . "One major-company e x e c u t i v e " . . . c l a i m e d . . . "that c r e d i t c a r d c u s t o m e r s (as much as 8 0 % of the patronage of many stations) a r e much l e s s r e s p o n s i v e to p r i c e cuts than cash c u s t o m e r s . The r e a s o n f o r this . . . i s that c r e d i t c a r d c u s t o m e r s have made a m a j o r d e c i s i o n r e g a r d i n g gasoline station patronage and w i l l not as a r e s u l t be u s u a l l y a l e r t to p r i c e r e d u c t i o n s , e s p e c i a l l y when no money changes hands" (Cassady, 1964, p. 373). While the c r e d i t c a r d has dampened the influence of the p r i c e -cutter, i t has only i n c r e a s e d the competition between the m a j o r s . The emphasis on site competition s t i l l r e m a i n s , but now the importance of p r o p e r s e l e c t i o n becomes even m ore c r i t i c a l . T h i s i s a p e r f e c t example of how an innovation may cause a change i n the environment and i n turn create a need f o r a shift i n s t r a t e g y . The new s t r a t e g i c d e c i s i o n is then r e f l e c t e d in the environment. In this p a r t i c u l a r case the s t r a t e g i c d e c i s i o n to adopt a network i s r e f l e c t e d d i r e c t l y onto the landscape. P r i c e s t r a t e g y . T h i s f o r m of m a r k e t i n g str a t e g y is p r a c t i c e d by a s m a l l m i n o r i t y of the f i r m s i n the market. The f i r m s a r e e x c l u s i v e l y s u b s i d u a r i e s or independents and account for no more than 15 p e r cent of the tot a l outlets in any given a r e a . 66 The p r i c e - c u t t e r r e a l i z e s that a su b s t a n t i a l segment of the m a r k e t is p r i c e conscious and th e r e f o r e is w i l l i n g to take advantage of l o w - p r i c e d o f f e r i n g s . The p r i c e competitor is a l s o aware that "the degree of c r o s s - r . e l a s t i c i t y of demand f o r the product of any one s e l l e r w i l l be s u f f i c i e n t l y low so that p r i c e reductions may be made without inevitable r e t a l i a t i o n . A s e l l e r may then f e e l that he can use a p r i c e cut to expand his trade because he believes that the effect on his competitors w i l l not be so s e v e r e as. to cause them to r e s o r t to co u n t e r c u t t i n g " (Cassady, 1964, p. 359). The use of this s t r a t e g y is l i m i t e d by two f a c t o r s --the s i z e of the p r i c e d i f f e r e n t i a l and the number of p r i c e - c u t t e r s . M a j o r companies w i l l u s u a l l y t o l e r a t e a 2£ d i f f e r e n t i a l (Cassady, 1964; W a r r e n & Wong, 1961; M o r r o w , 1967) but, i f the gap widens a p r i c e war may ensue. A l s o i f the percentage of the gasoline m a r k e t captured by p r i c e - c u t t e r s r e aches a c e r t a i n l e v e l , say 20 per cent, then the m a j o r s w i l l again take a c t i o n . It. is a known fact that the independent p r i c e - c u t t e r u s u a l l y s u f f e r s the most in an a l l out p r i c e war (Ca s s a d y & Jones, 1951; C a s s a d y , 1964, p, 363)^ th e r e f o r e , c o m pletely independent d e a l e r s are r a r e l y the f i r s t to in i t i a t e or r e t a l i a t e i n such a campaign. In fact, many of them just close shop during a battle and let the m a j o r s fight it out. Since p r i c e - c u t t e r s r e l y on the segment of the populace that looks for bargains they do not need highly a c c e s s i b l e locations or outstanding f a c i l i t i e s . Such f r i l l s only i n c r e a s e overhead and do not add s u b s t a n t i a l l y to the station's p e r f o r m a n c e . Independents are not la r g e enough to support or benefit f r o m nation a l a d v e r t i s i n g so product d i f f e r e n t i a t i o n is not s t r e s s e d . E v e n i f such f i r m s could f i n a n c i a l l y support a c r e d i t c a r d s y s t e m , t h e i r patrons are not the type of consumer that would use them. P r i c e - c u t t e r stations frequently lack such free f a c i l i t i e s as washing wind s h i e l d s , checking o i l etc. A m o t o r i s t is fortunate to find a washroom. Because of t h e i r s m a l l number, competition among p r i c e - c u t t e r s is not f i e r c e . Many of the stations r e l y on the patronage of repeat c u s t o m e r s to m a i n t a i n a good t h r e s h o l d . A s much as 75-80 per cent of the business f o r p r i c e - c u t t e r s may come f r o m repeat c u s t o m e r s . ^ L i k e the m a j o r s , the independent stations u s u a l l y m a i n t a i n a standard p r i c e , a l l of them being below the r e g u l a r m a r k e t by the same amount. In o r d e r to a t t r a c t the p r i c e - c o n s c i o u s c o nsumer to t h e i r s tation, the independents a l s o engage i n p r o m o t i o n a l g i m m i c k s like give-aways, coupons, bonuses. L o c a l a d v e r t i s i n g u s i n g feature sales of T B A is used, but its o v e r a l l effect is unknown. C a s s a d y (1964) c o n s i d e r s l a r g e " s c r e a m i n g 1 signs to be of m a j o r importance to p r i c e competitive d e a l e r s . Although p r i c e - c u t t e r stations are g e n e r a l l y le s s a c c e s s i b l e than m a j o r company stations, some p r i c e competitive f i r m s (department stores) make use of high a c c e s s i b i l i t y as w e l l as p r i c e to a t t r a c t c u s t o m e r s . The u s u a l method i s to place a station (again one l a c k i n g many f a c i l i t i e s ) i n clo s e p r o x i m i t y to a l a r g e p a r k i n g lot. The p a r k i n g lot is i n e v i t a b l y owned and operated by the department s t o r e . ^ I n t e r v i e w with M r . H a y w a r d of H a y w a r d P e t r o l e u m . 68 In the l a s t a n a l y s i s p r i c e competitors can r e a l l y be s a i d to employ the s t r a t e g y of m a r k e t segmentation. T h e y are not r e a l l y competing through p r i c e i n the c l a s s i c sense. T h e i r appeal is to a m a r k e t that has p a r t i c u l a r buying habits. R e a l p r i c e competition would ne c e s s i t a t e that they cut each others p r i c e s or that they cut p r i c e s below the l i m i t g e n e r a l l y t o l e r a t e d by the m a j o r s . It is g e n e r a l l y felt that c o n sumers who p a t r o n i z e p r i c e - c u t t i n g s e r v i c e stations can a l s o be p l a c e d into a s p e c i f i c s o c i o -e c onomic c l a s s . F u r t h e r work should be done to explore this facet of the i n d u s t r y . Summary. N o n - p r i c e s t r a t e g i e s a r e employed by m a j o r s who use m a i n l y product d i f f e r e n t i a t i o n and site quality to a t t r a c t c u s t o m e r s . P r i c e s t r a t e g y is u s e d by independent d e a l e r s to capture a s p e c i f i c segment of the market. C o n c l u s i o n ; " : "•" It was noted e a r l y i n this chapter that the nature of the m o d e r n f i r m is v e r y complex and that any g e n e r a l statement about the c h a r a c t e r , s t r u c t u r e , or s t r a t e g y of a f i r m r e q u i r e s r i g i d e m p i r i c a l evidence. A n i n t e r e s t i n g aspect of the f i r m ' s i n t e r a c t i o n with the environment is the m i x of m a r k e t i n g s t r a t e g i e s that it may employ. Look i n g s p e c i f i c a l l y at the N o r t h A m e r i c a n gasoline r e t a i l m a r k e t it was seen that the a c t o r s c o ncerned employ two b a s i c s t r a t e g i e s : p r i c e competition and n o n - p r i c e competition. T h i s dichotomy was seen to be true even at the l e v e l of the V a n c o u v e r gasoline m a r k et. C H A P T E R 4 M E T H O D O F A N A L Y S I S A N D R E S U L T S The V a n c o u v e r gasoline s e r v i c e station i n d u s t r y has been chosen as a case study in which to test the hypothesis that d i f f e r e n t m a r k e t i n g s t r a t e g i e s can cause d i f f e r e n c e s i n site quality. The method of a p p r o a c h u s e d i n testing the hypothesis has been to compare a sample of t y p i c a l m a j o r company stations with the population of p r i c e - c u t t e r stations i n the c i t y of V a n c o u v e r . Nature of the V a n c o u v e r G a s o l i n e M a r k e t Vancouver's gasoline r e t a i l m a r k e t is r e m a r k a b l y s i m i l a r to the one d e s c r i b e d i n the p r e c e d i n g s e c t i o n . The R o y a l C o m m i s s i o n on G a s o l i n e P r i c e S tructure i n B r i t i s h C o l u m b i a (Morrow, 1967) and the study of S e r v i c e Station T u r n o v e r i n the L o w e r M a i n l a n d ( W a r r e n & Wong, 1961) r e v e a l no outstanding d i s s i m i l a r i t i e s between the V a n c o u v e r m a r k e t and the N o r t h A m e r i c a n market. One important exception to this statement, however, is the fact that p r i c e - c u t t e r s i n V a n c o u v e r c o n t r o l a r e l a t i v e l y high p r o p o r t i o n of the market. A s f a r as can be a s c e r t a i n e d , F o r t L a u d e r d a l e , F l o r i d a is the only m a r k e t in N o r t h A m e r i c a where p r i c e -70 cutters s e l l a higher p r o p o r t i o n of gasoline than i n V a n c o u v e r . 1 T h i s s i m i l a r i t y did not always e x i s t . In the p e r i o d 1934 to 1951 B r i t i s h C o l u m b i a imposed government regulations on the o i l i n d u s t r y . However, "the experience was u n s a t i s f a c t o r y - investment f e l l off, s e r v i c e d e t e r i o r a t e d , p r i c e competition ended - and the idea was abandoned" ( F l e m i n g , 1966, p. 7 7 ) . 2 B y 1961 the i n d u s t r y appears to have a s s u m e d a posture c l o s e l y r e s e m b l i n g one that n o r m a l l y o c c u r s throughout the r e s t of N o r t h A m e r i c a . W a r r e n and Wong (1961) indicate that a s y s t e m of p r i c e l e a d e r s h i p was w e l l e s t a b l i s h e d by this date. T h e y state that i n B r i t i s h C o l u m b i a " p r i c e s of p e t r o l e u m products are g e n e r a l l y c o n s i d e r e d to be a d m i n i s t e r e d by the s e l l e r " (pp. 4-5). T h i s fact was r e - e s t a b l i s h e d two y e a r s l a t e r by a R o y a l Inquiry a ppearing before Judge W i l l i a m M o r r o w : A word that was in t r o d u c e d e a r l y i n the hearings was 'oligopoly' and it was suggested by some that it had a s i n i s t e r meaning. P e r h a p s it is an o v e r - s i m p l i f i c a t i o n to state that it m e r e l y means l e a d e r s h i p by a few or one in any named industry; and when there is a p r i c e change by the l e a d e r , there w i l l be an e a r l y response by others i n the same i n d u s t r y . It is a fact that i n B r i t i s h C o l u m b i a there is a r e c o g n i t i o n of mutual dependence. In a situation such as we have i n the i n d u s t r y i n B r i t i s h C o l u m b i a , p r i c e l e a d e r s h i p is found to be p r e s e n t . (1967, p. 126) i n t e r v i e w with M r . C l i f f Goddard, R e g i o n a l M a nager I m p e r i a l O i l (1970). ' . ^Government reg u l a t i o n of the p e t r o l e u m i n d u s t r y has o c c u r r e d i n only one other place i n N o r t h A m e r i c a ; Nova S c o t i a , 1933-1950. 71 Judge M o r r o w goes on to define even more p r e c i s e l y p r i c e l e a d e r s h i p as is evidenced by the f i n d i n g s . So, then,price l e a d e r s h i p could, perhaps, be best d e s c r i b e d as a situation where some company in each t e r r i t o r y must accept the onus of f o r m a l l y r e c o g n i z i n g c u r r e n t conditions and i f it makes any e r r o r s it w i l l soon lose its p o s i t i o n as the p r i c e l e a d e r . B y the same reasoning, I do not mean to say that a p r i c e l e a d e r can set p r i c e s at his own p l e a s u r e and f o r c e other m a r k e t e r s to c o n f o r m . (1967, p. 126) Although Judge M o r r o w (1967) c l a i m s that evidence does not point to a s i n g l e p r i c e l e a d e r (p. 126), he does mention e a r l i e r i n the r e p o r t that " i t would appear that I m p e r i a l (which includes Home) has the l a r g e s t s h a r e of the total m a r k e t and has p r e s u m a b l y become the p r i c e l e a d e r i n the gasoline operations i n B r i t i s h C o l u m b i a " (p. 27). A 1967 c o n s u m e r s u r v e y r e v e a l s the approximate m a r k e t percentages of each company i n the V a n c o u v e r a r e a ( F i g u r e 5). The gasoline studies a l s o r e v e a l that a number of independent stations operate outside the g e n e r a l s t r u c t u r e of p r i c e l e a d e r s h i p . W a r r e n and Wong (1961) state that the "independents a r e i n a p o s i t i o n to operate on a c u t - p r i c e basis because of the fact that t h e i r s e r v i c e offerings a r e r e s t r i c t e d . . . . Thus these c u t - p r i c e o p e r a t o r s have a decided p r i c e or m a r g i n advantage and use this as a competitive weapon" (p. 11). T h e y a l s o r e p o r t that 8 to 10 per cent of the gasoline m a r k e t i n the V a n c o u v e r ^Gallonage sales of i n d i v i d u a l companies or stations do not appear at any point as p u b l i c evidence i n the p r o c e e d i n g s . A s a r u l e , the m a j o r f i r m s r e g a r d this knowledge as competitive advantage and are thus reluctant to r e v e a l such f i g u r e s . It is f o r this r e a s o n that the author was not able to s e c u r e data on the tot a l s a l e s volume of i n d i v i d u a l companies. 7 2 M e t r o p o l i t a n * V a n c o u v e r B r i t i s h * * C o l u m b i a C a n a d a * * * I m p e r i a l 2 5 % 2 3 % 3 0 % H o m e 7 % 7 % 2 % C h e v r o n 1 4 % 1 1 % 2 % S t a n d a r d 9 % 7 % 2 % S h e l l 2 0 % 1 7 % 1 5 % G u l f 1 2 % 1 4 % 1 2 % R o y a l i t e 2 % 4 % 3 % T e x a c o " 6 % 1 0 % 1 2 % F I G U R E 5 : 1 9 6 7 C o n s u m e r s u r v e y a s k i n g t h e q u e s t i o n , " W h a t b r a n d o f g a s o l i n e d o y o u u s u a l l y b u y ? " 4 ( S o u r c e : C a n a d i a n D a i l y N e w s p a p e r P u b l i s h e r s A s s o c i a t i o n ) 4 5 1 r e s p o n d e n t s 2 , 0 4 4 r e s p o n d e n t s 1 3 , 9 3 8 r e s p o n d e n t s t^, O n e s h o u l d n o t r e g a r d t h e s e r e s u l t s a s a c c u r a t e l y r e p r e s e n t i n g t h e m a r k e t s h a r e o f e a c h c o m p a n y . T h e y a r e a t b e s t o n l y c r u d e i n d i c a t i o n s . a r e a b e l o n g s t o t h e i n d e p e n d e n t s a n d t h a t t h i s s h a r e i s i n c r e a s i n g . M o r e s p e c i f i c a l l y t h e M o r r o w R e p o r t s t a t e s t h a t p r i v a t e b r a n d e r s ^ o n l y o p e r a t e d 4.9 p e r c e n t o f t h e s e r v i c e s t a t i o n s i n M e t r o p o l i t a n V a n c o u v e r a n d 2.2 p e r c e n t o f t h e t o t a l n u m b e r i n t h e p r o v i n c e b u t a c c o u n t e d f o r 9. 7 p e r c e n t a n d 5.7 p e r c e n t r e s p e c t i v e l y o f t o t a l g a s o l i n e s a l e s . A s i n d i c a t e d b y t h e f i g u r e s M o r r o w c o n c l u d e d t h a t t h e a v e r a g e g a l l o n a g e p e r s t a t i o n f o r t h e i n d e p e n d e n t s w a s g r e a t e r t h a n t h a t f o r t h e m a j o r s . H e a l s o t o o k p a i n s t o p o i n t o u t h o w e v e r , t h a t W o o d w a r d s , S i m p s o n s - S e a r s , H e n d e r s o n s , a n d D o m i n i o n h a d e x c e e d i n g l y h i g h v o l u m e s o f s a l e s (1967, p . 65). B o t h t h e R o y a l I n q u i r y a n d s t u d y b y W a r r e n a n d W o n g i n d i c a t e t h a t t h e p r i c e d i f f e r e n t i a l b e t w e e n i n d e p e n d e n t s t a t i o n s a n d m a j o r s t a t i o n s w a s 2£ p e r g a l l o n . " I t h a s b e e n t h e g e n e r a l p r a c t i c e o f i n d e p e n d e n t n o n -b r a n d e r s a n d p r i v a t e b r a n d e r s t o k e e p w i t h i n a p p r o x i m a t e l y 2 c e n t s p e r g a l l o n o f t h e g e n e r a l p r i c e l e v e l o f t h e s t r o n g m a j o r b r a n d s . W i t h s u c h a d i f f e r e n t i a l , t h e s e o p e r a t o r s e x p e r i e n c e a s a t i s f a c t o r y v o l u m e o f s a l e s a n d i n t h e s h o r t r u n , d o n o t a p p e a r t o s e r i o u s l y i n t e r f e r e w i t h t h e m a r k e t s o f m a j o r s u p p l i e r s s o a s t o i n v i t e p r i c e r e t a l i a t i o n " ( W a r r e n & W o n g , 1961, p . 10). T h e m a j o r c o m p a n i e s o f t e n c r e a t e t h e c o n d i t i o n s n e c e s s a r y f o r t h e e n t r y o f c u t - r a t e s t a t i o n s i n t o t h e m a r k e t . T h i s o c c u r s w h e n a m a j o r o i l m a n u f a c t u r e r h a s a n e x c e s s r e f i n e r y c a p a c i t y a n d t r i e s t o g e t r i d o f i t s s u r p l u s b y s e l l i n g l a r g e q u a n t i t i e s o f g a s o l i n e t o i n d e p e n d e n t d e a l e r s a t a ^ P r i v a t e b r a n d e r s i s a t e r m s y n o n y m o u s w i t h p r i c e - c u t t e r s . 74 v e r y low p r i c e . A n example of this happened i n 1957 when the cut-rate gasoline d e a l e r s got into p r o d u c t i o n in the V a n c o u v e r market. " T h i s was the time when B. A. O i l had built a new r e f i n e r y i n P o r t Moody and o v e r -p r o d u c e d gasoline to a point where they had to dump it to get the other by-products. The r e s u l t was that in about eight y e a r s the c u t - r a t e r s i n B. C. took 13 p e r cent of the gasoline r e t a i l m a r k e t away f r o m the huge cor p o r a t e o i l companies. A n o t h e r i n d i c a t i o n of the l a c k of d i r e c t p r i c e competition is the fact "that s e r v i c e station o p e r a t o r s did not s e e m to know the p r i c e s c h arged by t h e i r c o m p e t i t o r s " ( Morrow, 1967, p. 54). Both studies a l s o indicate that it is only a c e r t a i n segment of the m a r k e t that frequent p r i c e - c u t t e r s . "While there was a d i v e r s i t y of p r i c e s . . . the evidence i n d i c a t e d a l a c k of awareness of this d i v e r s i t y by m o t o r i s t s and even by d e a l e r s (Morrow, 1967, p. 55). But, M o r r o w a l s o says that "some m o t o r i s t s w i l l buy non-brand gasoline even at a p r i c e d i f f e r e n t i a l of only l£" (p. 67). The R o y a l C o m m i s s i o n a l s o p r o b e d the question of c r e d i t c a r d s . I m p e r i a l O i l made the c l a i m that the c r e d i t c a r d " i s a s e r v i c e p r o v i d e d f o r competitive reasons and i t is evident that a l a r g e and growing p r o p o r t i o n of a l l r e t a i l c u s t o m e r s d e s i r e to have i t " ( I m p e r i a l O i l , 1967, p. 14). Morrow's findings i n d i c a t e d that the average cost of c r e d i t c a r d s is about l/2£ p e r gallon of tot a l gasoline s ales of s e r v i c e stations and about l-l/2£ ^Information f r o m a l e t t e r f r o m M r . Ron M a r c o u x of M c C a n F r a n c h i s e s , 1970. 75 p e r gallon of c r e d i t c a r d s a l e s . Although this means that n o n - c r e d i t c a r d u s e r s a r e paying for the convenience d e r i v e d by those who use a c r e d i t c a r d , M o r r o w admitted that there was v e r y l i t t l e that could be done to c o r r e c t the sit u a t i o n . The d i s c u s s i o n thus f a r would s eem to demonstrate the fact that Vancouver's gasoline m a r k e t is v e r y s i m i l a r to those o b s e r v e d elsewhere. The following tables w i l l give a more detai l e d p i c t u r e of the p r e s e n t si t u a t i o n i n the ci t y of V a n c o u v e r . ^ T a b l e 1 l i s t s , under the headings of 'price c o m p e t i t o r s ' and 'non-p r i c e c o m p e t i t o r s , ' a l l the m a j o r , s u b s i d u a r y , and independent f i r m s operating i n the C i t y of Va n c o u v e r . T a b l e 2 gives a breakdown of a total number of 340 no n - p r i c e competitors a c c o r d i n g to company ownership. T h e s e stations pump an es t i m a t e d 69,621,000 gallons of ga s o l i n e . T a b l e 3 gives a s i m i l a r breakdown f o r the 20 p r i c e competitor stations but a l s o includes some percentage f i g u r e s on gallonage share of the m a r k e t . P r i c e competitors pump an estimated-10, 870, 000 gallons and c o n t r o l a p p r o x i -m a t e l y 15 .61 per cent of the market. A few m i n o r d i f f e r e n c e s are a l s o evident i n the market. Observation, has shown that p r i c e - c u t t e r s do not employ the t a c t i c of " s c r e a m i n g " s i g n s . Although this may be due to some extent to ci t y zoning "^Since 1966 the effects of r e s t r i c t i v e zoning has come to pla y a par t in the gasoline i n d u s t r y of Va n c o u v e r . Since zoning does not bear d i r e c t l y on the company's 'choice' of stra t e g y (as it p r e s e n t l y stands), this topic w i l l be d i s c u s s e d at a l a t e r date. 76 T A B L E 1 Ga s o l i n e R e t a i l F i r m s i n Va n c o u v e r M a r k e t P r i c e C o m p e t i t o r s N o n - P r i c e C o m p e t i t o r s Mohawk O i l Co. L t d . Pay-N-Save P e t r o l e u m s Woodward's C a l V an Auto Supply D o m i n i o n V a n c o u v e r Motors C a r d i n a l C a r Wash Hayward P e t r o l e u m M e r i t O i l E c o n o . ....... (owned by) O * • ft o « o . Home O i l * R o y a l i t e * . . . . (owned by) . I m p e r i a l O i l (Esso) . G u l f O i l S h e l l of Canada Standard of B. C.** T e x a c o Union O i l Co. P a c i f i c 66 * n o n - p r i c e competitors **company operated stations are known as S T A N D A R D while d e a l e r operated stations are designated as C H E V R O N T A B L E 2 N o n - P r i c e C o m p e t i t o r s (1970) Company Number of Stations % of no n - p r i c e competitor stations % t o t a l stations C h e v r o n 78 Standard 7 Gu l f 67 S h e l l 50 E s s o 49 Home 33 T e x a c o 28 Royali t e 15 P a c i f i c 66 9 Union 76 4 340 (85) (23.6) 19.7 18. 6 14. 7 13.9 14.4 13. 6 9.7 9.2 8.2 7.8 4.4 4.2 2.7 2. 5 1.2 1.1 100. 0 94. 12 T A B L E 3 P r i c e C o m p e t i t o r s (1970) Company Number of stations % of p r i c e competitor stations % of total stations % sales of p r i c e c o m p e titor m a r k e t % s a l e s p e r station i n p r i c e competitor m a r k e t Mohawk 7 35. 0 1.94 15.92 2.27 Pay-N-Save 4 20. 0 1.18 15.27 3.82 E c o n o 2 10.0 .56 14.44 7.22 Woodward's 2 10. 0 .56 26. 31 13. 15 C a l V a n Auto 1 5.0 .28 5. 70 5.70 Haywards 1 5.0 .28 4.97 4.97 M e r i t 1 5.0 .28 8. 00 8. 00 D o m i n i o n 1 5.0 .28 7.91 7.91 C a r d i n a l 1 , 5.-0 .28 1.47 1.47 T O T A L 20 100. 0 5.88 100.0 78 re g u l a t i o n s , the average p r i c e - c u t t e r ' s s i g n is f a r l e s s v i s i b l e than it might be. T h i s is e s p e c i a l l y true i n the a d v e r t i s e m e n t of p r i c e d i f f e r e n t i a l s . It was a l s o o b s e r v e d that a few stations operate on a p r i c e d i f f e r e n t i a l of At; a f u l l 2£ below t h e i r d i r e c t c o m p e t i t o r s . Although p r i c e competitive stations account f o r only 5.88 per cent of the total number of outlets t h e i r s a l e s r e p r e s e n t 15.61 per cent of the m a r k e t s h a r e . Such a l a r g e share of the m a r k e t i s m o re the exception than the rule i n other N o r t h A m e r i c a n m a r k e t s . S e v e r a l company o f f i c i a l s i n d i c a t e d that the m a r k e t c o n t r o l l e d by independents was only 12 p e r cent. T h i s may be due to the fact that they were c o n s i d e r i n g M e t r o p o l i t a n V a n c o u v e r as w e l l as lea v i n g out E c o n o which is c o n t r o l l e d by I m p e r i a l . Such a statement would then seem i n order.. L i t t l e d i f f e r e n c e i n the m a j o r brand stations i s evident, except f o r the fact that they appear to be of a g e n e r a l l y lower quality than those e l s e w h e r e . However, e m p i r i c a l tests should be made i n o r d e r to c o n f i r m this statement. Although C a s s a d y and Jones (1951) c l a i m that there i s u s u a l l y a d i r e c t c o r r e l a t i o n between the number of stations a f i r m has i n a s p e c i f i c m a r k e t and that f i r m ' s share of the market, this s i t u a t i o n does not e x i s t i n V a n c o u v e r . Standard has more stations (85) than does I m p e r i a l / Home (83) but I m p e r i a l appears to have a c o n s i d e r a b l e edge i n m a r k e t s h a r e . Summary. E x c e p t for the fact that a r e l a t i v e l y l a r g e p r o p o r t i o n of the m a r k e t is .controlled by p r i c e - c u t t e r s , the V a n c o u v e r gasoline m a r k e t is v e r y s i m i l a r to gasoline m a r k e t s elsewhere. The m a r k e t i n g s t r a t e g i e s 79 employed i n V a n c o u v e r are the same as those u s e d in other a r e a s . M a j o r brand companies use the s t r a t e g i e s of product d i f f e r e n t i a t i o n and convenient l o c a t i o n to a t t r a c t c u s t o m e r s , while the independent d e a l e r s use the s t r a t e g y of p r i c e to appeal to a s p e c i f i c m a r k e t segment. Outline of A n a l y s i s In the C a l i f o r n i a study both gallonage and s u r v i v a l r a t i o were used as o v e r t m e a s u r e s of p e r f o r m a n c e (Claus 1969, p. 28). In V a n c o u v e r , however, gallonage as a m e a s u r e of p e r f o r m a n c e was u s e d e x c l u s i v e l y . T h i s was n e c e s s i t a t e d because the s u r v i v a l r a t i o as a p e r f o r m a n c e m e a s u r e would have been meaningless i n the p r e s e n t c i r c u m s t a n c e s . A s was noted e a r l i e r , independent p r i c e - c u t t e r s have only moved into the m a r k e t since 1957 when there was a glut of excess gasoline a v a i l a b l e . T h i s i s hardly-enough time f o r a n o r m a l m a r k e t situation to evolve and mature. T h e r e i s a l s o the fact that V a n c o u v e r C i t y C o u n c i l has i n i t i a t e d a conscious p o l i c y of preventing the b i r t h of new stations i n the m a r k e t p l a c e . T h i s p o l i c y has its o r i g i n s i n the M o r r o w r e p o r t of 1967 which recommended a " r e s t " i n the building of s e r v i c e stations f o r at l e a s t five y e a r s . Not only does this government i n t e r v e n t i o n prevent the b i r t h of new stations but it a l s o prevents the death of old ones. O i l companies are reluctant to close out old, outdated and p o o r l y located s i t e s f o r f e a r that p e r m i s s i o n to b u i l d a new station in its place w i l l not be granted. The f e a r of l o s i n g income by shutting down a station f o r c e s the o i l companies to m a i n t a i n sites that would n o r m a l l y s u f f e r a n a t u r a l death i n the m a r k e t p l a c e . Q u a l i t y ratings f o r each station were obtained by u s i n g a site 80 rating i n s t r u m e n t s i m i l a r to the one developed by C l a u s (1969). A non-p a r a m e t r i c c o r r e l a t i o n a l a n a l y s i s was then p e r f o r m e d on the data to d i s c o v e r i f there were any s i g n i f i c a n t r e l a t i o n s h i p s between site quality and the m a r k e t i n g s t r a t e g y u s e d by the two groups of m a r k e t e r s . F i g u r e 6 i l l u s t r a t e s the three stage m o d e l used i n the data a n a l y s i s . A n examination of the c o r r e l a t i o n a l m a t r i x e s p r o d u c e d by the three stages r e v e a l s m a r k e d d i f f e r e n c e s i n the qualitative r e q u i r e m e n t s f o r the two types of m a r k e t i n g s t r a t e g y employed i n the V a n c o u v e r market. A s m a l l case study, examining three s e r v i c e stations i n c l o s e p r o x i m i t y to one another, was a l s o p e r f o r m e d in an attempt to gain f u r t h e r in s i g h t into the a c t u a l effects of d i f f e r e n t s t r a t e g i e s on the landscape. Sampling P r o c e d u r e s T o reduce the effects of zoning regulations as an i n t e r v e n i n g Q v a r i a b l e i n the experiment, the sample of stations was s e l e c t e d f r o m a sing l e p o l i t i c a l a r e a ; the C i t y of V a n c o u v e r . In this way a l l the stations i n the study would be i n f l u e n c e d to the same degree by zoning by-laws. A s was pointed out e a r l i e r , government regulations can often d r a s t i c a l l y affect the quality of a p a r t i c u l a r r e t a i l s i t e . In o r d e r to s e c u r e a sample of m a j o r company s e r v i c e stations with t h e i r r e s p e c t i v e y e a r l y gallonages, four m a j o r o i l companies A s was noted in Chapter 2, zoning regulations, f i r e codes, e t c . , can g r e a t l y affect the quality of a r e t a i l s i t e . T o test f o r qualitative d i f f e r e n c e s between s i t e s , the effect of g o v e r n m e n t a l i n t e r v e n t i o n must r e m a i n constant. 81 S T A G E 1 M a j o r S t a t i o n s M i c r o s c o r e s M a c r o s c o r e s T o t a l s c o r e s "s G a l l o n a g e o f M a j o r s S T A G E 2 I n d e p e n d e n t S t a t i o n s M i c r o scores |  M a c r o scores To ta l scores | r s •r< G a l l o n a g e o f I n d e p e n d e n t s S T A G E 3 A l l S t a t i o n s M i c r o s c o r e s | M a c r o scores T o t a l s c o r e s r s G a l l o n a g e o f A l l S t a t i o n s i i 6 £ d , N 3 - N F IGURE 6 . T H R E E S T A G E M O D E L O F C O R R E L A T I O N A L A N A L Y S I S 82 c o n t r o l l i n g 69.7 per cent of a l l stations i n the V a n c o u v e r m a r k e t were asked to p a r t i c i p a t e i n the experiment. It was felt that these four companies adequately r e p r e s e n t e d the g e n e r a l m a r k e t of m a j o r company stations. E a c h of these four companies were asked to supply a l i s t of stations that f e l l within the median range of y e a r l y gallonages f o r t h e i r p a r t i c u l a r company. F r o m each company's l i s t , s i x stations were chosen at random p r o d u c i n g a sample of 24 stations. A f t e r r a t i n g the whole sample, one station had to be e l i m i n a t e d because of p e c u l i a r c i r c u m s t a n c e s in that station's immediate a r e a . It was hoped that by this p r o c e d u r e a sample of t y p i c a l m a j o r company s e r v i c e stations could be e s t a b l i s h e d . Since the m a j o r company stations were only to be used as a comparative m e a s u r e it was not n e c e s s a r y to take a random sample of a l l m a j o r stations i n the a r e a . T h i s p r o c e d u r e would not only be v e r y time consuming, but it would a l s o produce a much higher v a r i a n c e within the c o m p a r i s o n group. P r o b l e m s would have a l s o been encountered with the o i l companies, as they a r e g e n e r a l l y r e l u c t a n t to r e l i n q u i s h gallonage f i g u r e s on i n d i v i d u a l s t a t i o n s . Although they were co-o p e r a t i v e i n supplying gallonage f i g u r e s f o r s i x stat i o n s , a s king f o r 20 or 30 such f i g u r e s would have only met with r e f u s a l . The sample that was eventually s e l e c t e d appeared to be v e r y homogeneous and r e p r e s e n t e d the average gallonage s e r v i c e station f o r m a j o r companies „ ^  The o r i g i n a l number of 24 sample stations was chosen because it was v e r y ^In V a n couver, in 1969 the average m a j o r company gasoline s e r v i c e station pumped 210,000 ga l l o n s . The average gallonage f o r m a j o r stations in the study sample was 223,000 ga l l o n s . 83 close to the number of p r i c e - c u t t e r s i n the same ma r k e t a r e a . T a b l e 4 gives f i g u r e s f o r the mean, median, and range of gallonages f o r m a j o r and independent sta t i o n s . T A B L E 4 Mean, Median, and Range of Gallonages f o r M a j o r and Independent Stations i n the V a n c o u v e r Study (gal. /yr.) T y p e of Station M ean Med i a n Range M a j o r s (N=23) Independents (N=20) 223,000 450,000 220,000 545 000 > 140,000 - 350,000 100,000 - 2,1000,000 The population of independent p r i c e - c u t t e r stations i n the V a n c o u v e r m a r k e t to t a l l e d 20 at the time of the study. Because the independent companies were reluctant to p a r t i c i p a t e , it was n e c e s s a r y to obtain t h e i r gallonage f i g u r e s f r o m a number of other s o u r c e s i n c l u d i n g i n t e r v i e w s with • station o p e r a t o r s , estimates f r o m c o m p e t i t o r s , and f i g u r e s given by s u p p l i e r s . C r o s s checks on es t i m a t e d gallonages r e v e a l e d few d i s c r e p a n c i e s . T a b l e 4 r e v e a l s that the range of gallonages f o r the p r i c e - c u t t e r s is much l a r g e r than f o r the sample of m a j o r sta t i o n s . T h i s was anticipated since the s a m p l i n g p r o c e d u r e used i n s e l e c t i n g m a j o r stations was done i n o r d e r to reduce the v a r i a n c e . The T a b l e a l s o r e v e a l s that the average p r i c e - c u t t e r pumps m o r e than-twice as much gasoline as does the average m a j o r station. T h i s was a l s o anticipated, since the p r i c e - c u t t e r must pump more gasoline than m a j o r stations just to break even. T h i s is n e c e s s a r y because of the lower p r i c e s charged by the independents and 84 because the independents do not r e c e i v e much income f r o m backroom work, T B A , and other s e r v i c e s . M a r k e t i n g Strategies The four l a r g e s t companies p a r t i c i p a t i n g i n the study were I m p e r i a l , Gulf, S h e l l , and Standard. A l l a r e c o n s i d e r e d to be " m a j o r " o i l companies, each c o n t r o l l i n g at l e a s t two per cent of the N o r t h A m e r i c a n m a r k e t and i n the case of V a n c o u v e r , each one c o n t r o l l i n g m o r e than ten p e r cent of the market. T h e s e companies a l s o sponsor n a t i o n a l a d v e r t i s i n g as w e l l as operating a national c r e d i t c a r d s y s t e m . T o investigate even f u r t h e r each company's r e t a i l i n g p r a c t i c e s i n V a n c o u v e r , m a r k e t i n g p e r s o n n e l f o r each company were i n t e r v i e w e d and asked the following questions: 1. Do a l l y our V a n c o u v e r stations s e l l gasoline at the same p r i c e ? A l l companies answered no to this question; however, a l l f our q u a l i f i e d t h e i r statements saying that the f i n a l r e t a i l p r i c e was d e t e r m i n e d by the d e a l e r . It was a l s o stated that the companies t r i e d to m a i n t a i n a f a i r l y u n i f o r m p r i c e among t h e i r brand stations. 2 . What is the range in p r i c e f o r your brand of gasoline i n V a n c o u v e r ? A l l r e p l i e d that l£ to 2£ was the u s u a l range but that o c c a s i o n a l exceptions did o c c u r , again depending on the i n d i v i d u a l d e a l e r . 3. Do your stations p a r t i c i p a t e i n contests, games, give-aways, bonuses, reduced m e r c h a n d i s e , e t c . ? A l l companies answered yes, saying that f r o m time to time t h e i r 85 stations did engage i n such p r a c t i c e s . T h e y a l l c o n s i d e r e d such p r o m o t i o n a l devices as standard m a r k e t i n g p r o c e d u r e , stating that these were u s u a l l y a s s o c i a t e d with a national o r r e g i o n a l a d v e r t i s i n g campaign and thus r a n f o r only a l i m i t e d span of time. 4. Do your stations u s u a l l y s e l l gasoline at the same p r i c e as other m a j o r s ? The standard answer to this question was that t h e i r stations u s u a l l y met the p r i c e of the l a r g e s t competitor r e s u l t i n g i n a f a i r l y u n i f o r m p r i c e throughout the market. ^ 5. Do some stations i n the m a r k e t continually s e l l gasoline at a p r i c e lower than your company s t a t i o n s ? The answer was a unanimous yes. The t e r m non-brander, p r i c e -cutter, or independent was frequently u s e d to d e s c r i b e these st a t i o n s . 6. How much l o w e r ? Depending on the station, a l l responses i n d i c a t e d that p r i c e -cutters u s u a l l y s o l d gasoline f o r 2£ to 4£ below the " n o r m a l " m a r k e t p r i c e . 7. C o u l d you supply a l i s t of these s t a t i o n s ? A l l four companies had a l i s t of so c a l l e d 'hon-branders" along with each station's e s t i m a t e d gallonage f o r 1969. Two companies g e n e r o u s l y su p p l i e d the author with a copy of t h e i r l i s t s . A n o t h e r company maintained a map of a l l non-brand stations with t h e i r e stimated gallonages. The fourth did m a i n t a i n a l i s t but was reluctant to r e v e a l i t to the author. The two l i s t s r e c e i v e d as w e l l as the map matched up p e r f e c t l y r e g a r d i n g the name and l o c a t i o n of non-branders and deviated only s l i g h t l y in e s t i m a t e d g a l l o n -ages. When questioned f u r t h e r about s p e c i f i c independent stations a l l 86 m a r k e t i n g p e r s o n n e l were r e a d i l y f a m i l i a r with each station's operating p r o c e d u r e s . 8. What percentage of the V a n c o u v e r m a r k e t do non-branders or p r i c e - c u t t e r s c o n t r o l ? A n s w e r s ranged f r o m 11 per cent to 15 per cent, but some were q u a l i f i e d as r e f e r r i n g to m e t r o p o l i t a n V a n c o u v e r r a t h e r than the C i t y of V a n c o u v e r . Interviews with the companies would seem to indicate that they follow a p r a c t i c e of p r i c e l e a d e r s h i p in the V a n c o u v e r market; however, m i n o r fluctuations i n p r i c e of gasoline do o c c u r because of i n d i v i d u a l d e a l e r s . T h i s c o n f i r m s Judge Morrow's findings of 1967. Although games, bonuses, give-aways, et c . , may be r e g a r d e d as a f o r m of p r i c e - c u t t i n g , this a l s o seems to be f a i r l y u n i f o r m among a l l companies studied and would t h e r e f o r e not create a l a s t i n g p r i c e d i f f e r e n t i a l . It would a l s o appear that the companies i n t e r v i e w e d r e c o g n i z e d p r i c e - c u t t i n g as a d i f f e r e n t f o r m of m a r k e t i n g strategy. Although the m a j o r s themselves did not follow this p r a c t i c e they were acutely aware of those who did and were f u l l y i n f o r m e d on a l l such operations. F i e l d o b s e r v a t i o n i n 1970 of the sample of m a j o r company stations r e v e a l e d an average p r i c e of 45. 9£ per i m p e r i a l gallon f o r r e g u l a r gasoline and 50. 9£ per g a l l o n f o r p r e m i u m . P r i c e deviations f o r r e g u l a r gasoline o c c u r r e d only in four instances where a d i f f e r e n t i a l of l£ was o b s e r v e d . P r e m i u m gasoline r e v e a l e d s i x deviations and ranged f r o m l£ to 3£. The g e n e r a l d i f f e r e n t i a l between r e g u l a r and p r e m i u m was 5£ per g a l l o n , 87 although this tended to be s m a l l e r where deviations did o c c u r . O b s e r v a t i o n of non-brand stations showed that t h e i r p r i c e s fluctuated m o re than the m a j o r sta t i o n s . The average p r i c e of r e g u l a r was about 42£ per gallon although it did drop to 40. 9£ i n one instance and went as high as 44. 9£ i n another. The average p r i c e of p r e m i u m gasoline was about 45£ ranging f r o m 42. 9£ to 47.9 r° The d i f f e r e n t i a l i n p r i c e between r e g u l a r and p r e m i u m gasoline f or non-brand stations appears to be 3£ to 4£ per g a l l o n . P r i c e - c u t t e r s a l s o use coupons, bonuses, give-aways, r e d u c e d m e r c h a n d i s e , etc. M e r i t O i l has a s y s t e m of coupons, while C a l V a n uses a gasoline discount method. The E c o n o stations have a wide range of d i s -counted m e r c h a n d i s e i n c l u d i n g gardening s u p p l i e s , lawn f u r n i t u r e , and r e c r e a t i o n a l goods. Interviews with independent d e a l e r s r e v e a l that 70 to 80 per cent of t h e i r business is f r o m repeat c u s t o m e r s . Because of t h i s , the y e a r l y c y c l e s of business f o r independents and m a j o r s a r e r e v e r s e d . The independents' best month f o r gasoline is D e c e m b e r when there is t r a d i t i o n a l l y a lot of shopping and l o c a l v i s i t i n g to be done. M a j o r companies, on the other, hand, r e p o r t the summer months of July and August as t h e i r best s eason. T h i s shows that they have many one stop c u s t o m e r s who a r e m e r e l y p a s s i n g through. A s a rule independent stations have lower m a r k e t i n g expenses than m a j o r company stations ( F i g u r e 7). E v e n though t h e i r expenses a r e lower, the independents must m a i n t a i n a higher r e q u i r e d m a r k e t i n g 8 8 INDEPENDENT AND MAJOR COMPANY SERVICE STATION EXPENSES M A J O R C O M P A N Y S T A T I O N I N D E P E N D E N T S T A T I O N G A L L O N A G E dealer compensation other retail expenses station labor utilities J^real estate delivery ^other wholesale expenses F I G U R E 7. 8 9 margin. ^ This is true because: 1) independent stations have lower non-gasoline gross profits; 2) independents have a lower ratio of premium/ regular gasoline sales. They also receive less for the premium gasoline they do sell . With 40 per cent premium sales at a 3£ differential the major company will make 1.2 cents/gallon profit while the independent is likely to receive only 30 per cent premium sales at a l ( differential and make .3 cents/gallon profit; 3) because independent stations usually sell gasoline 2£ to 4£ below standard prices they must mak'e up the difference by increased gallonage or lower overhead. In general it can be said that in Vancouver the major companies follow a system of price leadership and do not actively compete through price but use other less direct marketing tactics to attract customers. The non-brand stations, on the other hand, use price as a competitive weapon and sell gasoline for 2£ to 4£ per gallon below the price set by the major firms. Development and Application of Site Rating Instrument To establish a quality rating score for each service station in the study, a site rating instrument very similar to the one developed by Claus was employed. Experience in California suggested that Brick's original system (see Chapter 2) of weighting site variables (which had been designed to accommodate the New Jersey market) might be modified to ^Required marketing margin is the marketing margin which an individual station must have to recover all costs including charges on real estate. 90 give a m o re a c c u r a t e p r e d i c t i o n of gallonage. ^  A new r a t i n g schedule of reweighted v a r i a b l e s is shown in F i g u r e 8. T h i s new schedule has been us e d to rate gasoline s e r v i c e stations in C a l i f o r n i a and i s the one employed i n the p r e s e n t study. The m o d i f i e d rating schedule a l s o has the added advantage of being i n whole numbers r a t h e r than d e c i m a l s , thus f a c i l i t a t i n g r a p i d f i e l d c a l c u l a t i o n s . T o test f o r any s i g n i f i c a n c e between the two s y s t e m s of weighted v a r i a b l e s both schedules were used i n r a t i n g the sample of 23 m a j o r company stati o n s . Since B r i c k ' s o r i g i n a l i n s t r u m e n t was developed s o l e l y f o r the ra t i n g of m a j o r company stations, it was felt that the best c o m p a r i s o n could be obtained by examining only m a j o r stations. B e c a u s e of the nature of the data (which w i l l be explained l a t e r i n this chapter) a n o n p a r a m e t r i c c o r r e l a t i o n a l a n a l y s i s was p e r f o r m e d . The m i c r o , m a c r o , and tota l r a ting s c o r e s f o r B r i c k ' s schedule and the reweighted schedule, as w e l l as the gallonages f o r a l l s t a t i o n s , were ranked in descending o r d e r . A c o r r e l a t i o n a l a n a l y s i s between gallonage and site r a ting s c o r e s was then p e r f o r m e d using Spearman's rank c o r r e l a t i o n c o e f f i c i e n t as defined by the s t a t i s t i c : N r s = 1 - 6 I d i 2  i = l N 3 - N ^ F o r a f u l l e r d i s c u s s i o n of r e g i o n a l d i f f e r e n c e s i n the r e l a t i v e i mportance of site r a t i n g v a r i a b l e s and t h e i r weightings see C l a u s (1969), Name: M I C R O - L O C A T I O N A L A S P E C T S O F S E R V I C E S T A T I O N S A d d r e s s : Gallonage: L i n e a r : Zone of Conflux: Rating: I L L U S T R A T I O N O F S I T E Station D e s i g n and F a c i l i t i e s 10 8 6 4 2 Layout (Size and Shape) 10 8 6 4 2 Pl a c e m e n t as to T r a f f i c F l o w 20 16 12 8 4 V i s i b i l i t y 10 8 6 4 2 Grades of A r t e r i e s and Streets 5 4 3 2 1 M A C R O - L O C A T I O N A L A S P E C T S O F S E R V I C E S T A T I O N S L o c a l or Neighborhood T h r e s h o l d 10 8 6 4 2 Incomes in and/or Type of A r e a 5 4 3 2 1 A r e a Growth C h a r a c t e r i s t i c s 10 8 6 4 2 Lo c a t i o n as to Dominant T h r e s h o l d 5 4 3 2 1 T r a f f i c T h r e s h o l d P o t e n t i a l 10 8 6 4 2 Stations ' Density Ratio 5 4 3 2 1 100 80 60 40 20 C O M M E N T S : F I G U R E 8: P e r f o r m a n c e Rating Guide: S e r v i c e Station and S e r v i c e Station Site 92 where r s = c o r r e l a t i o n c o e f f i c i e n t di = the s q u a r e d d i f f e r e n c e between p a i r e d ranks N = the number of observations T a b l e 5 gives the r e s u l t s of the above a n a l y s i s . The r s s t a t i s t i c has not been c o r r e c t e d f o r ties i n this case because equal numbers and equal magnitudes of ties e x i s t e d i n both sets of data and would t h e r e f o r e not effect a c o m p a r i s o n of the two s c h e d u l e s . T A B L E 5 Scales B r i c k ' s Schedule Reweighted Schedule M i c r o . 72 ' . 70 M a c r o . 08 . 07 T o t a l .81 . 83 The c o r r e l a t i o n a l a n a l y s i s r e v e a l s that there i s l i t t l e d i f f e r e n c e between the two site r a t i n g i n s t r u m e n t s . It can be concluded then, that i n this i n s t a n c e , the reweighted schedule i s at l e a s t as effective as B r i c k ' s o r i g i n a l s y s t e m of weighted v a r i a b l e s . B e c a u s e of the l i m i t e d sample s i z e (23) and the i n c o n c l u s i v e r e s u l t s , i t would be u n f a i r to say that e i t h e r one of the r a t i n g i n s t r u m e n t s was s u p e r i o r i n the V a n c o u v e r market. Data C o l l e c t i o n The b a s i c data used in the a n a l y s i s c o n s i s t e d of: 1) gallonage f i g u r e s f o r each station during 1969, and 2) quality r a t i n g s c o r e s f o r each station. A s was explained e a r l i e r the gallonage f i g u r e s f or the m a j o r company stations were obtained d i r e c t l y f r o m the companies t h e m s e l v e s . Gallonage data f o r non-brand stations was r e c e i v e d f r o m a number of other s o u r c e s . Q u a l i t y r a t i n g s c o r e s were obtained by r a t i n g each station i n the study using the i n s t r u m e n t as shown i n F i g u r e 8. A f u l l d e s c r i p t i o n of the use and a p p l i c a t i o n of this site r a t i n g guide, plus a s u p p l e m e n t a r y q u e s t i o n n a i r e , can be found i n C l a u s and Rothwell (1970). T h i s p u b l i c a t i o n s temmed f r o m a pi l o t study of a number of s e r v i c e stations of known gallonage conducted in the winter of 1969-70 by D r . R. J. C l a u s and the author. The purpose of this study was to become m o r e f a m i l i a r with the gasoline s e r v i c e station i n d u s t r y of V a n c o u v e r and to t r a i n the author i n the p r o p e r use of the site r a ting i n s t r u m e n t . E x t e n d e d d i s c u s s i o n s were held on the effects that each l o c a t i o n a l v a r i a b l e had on the total r a ting s c o r e . The eventual outcome of the t r a i n i n g and study r e s u l t e d i n the development of the quality r a t i n g schedule used i n this t h e s i s . When the p r a c t i c e ratings i n the p i l o t study were completed, D r . C l a u s and the author independently rated the s e r v i c e stations s e l e c t e d f o r the p r e s e n t study. T o e s t a b l i s h some me a s u r e of i n t e r - r a t e r r e l i a b i l i t y , S p e arman rank c o r r e l a t i o n s were run between the two sets of m i c r o , m a c r o , and total s c o r e s . T a b l e 6 r e p o r t s the r e s u l t s . The high r s values of .94, .84, and .94 for c o r r e l a t i o n s between i d e n t i c a l m e a s u r e s would seem to indicate a f a i r l y high degree of i n t e r -r a t e r r e l i a b i l i t y . 94 T A B L E 6 Spearman Rank C o r r e l a t i o n s Between Independently Rated M i c r o , M a c r o , and T o t a l S c o r e s for a l l Stations R a t e r No. 2 R a t e r No. 1 M i c r o M a c r o T o t a l M i c r o .94 .20 . 84 M a c r o .21 .84 .43 T o t a l .81 .46 .94 • The T a b l e a l s o indicates that a s t r o n g r e l a t i o n s h i p exists between m i c r o s u b s c o r e s and total s c o r e s for both r a t e r s . S t a t i s t i c a l P r o c e d u r e s A f t e r examining the raw data it was decided that n o n p a r a m e t r i c tests would be u s e d i n the s t a t i s t i c a l a n a l y s i s . T h i s was done for' a number of r e a s o n s . D i f f i c u l t i e s i n p a r a m e t r i c a n a l y s i s would have a r i s e n f r o m the fact that one group of sta t i o n s , i . e . the m a j o r s , c o m p r i s e d a sample while the other group, the independents, made up the entire population. Both the sample of m a j o r stations (N = 23) and the population of independents (N = 20) were too s m a l l to meet the p o w e r - e f f i c i e n c y r e q u i r e m e n t s of most p a r a m e t r i c t e s t s . V a r i a b l e s i n v o l v e d i n p a r a m e t r i c tests must a l s o be m e a s u r e d i n an i n t e r v a l s c a l e . T h i s r e q u i r e m e n t , however, could not be c o n c l u s i v e l y d emonstrated f o r the v a r i a b l e s c o r e s i n the site r a t i n g i n s t r u -ment. A d d i t i o n a l to this is the fact that the s a m p l i n g p r o c e d u r e f o r the s e l e c t i o n of m a j o r company stations was not e n t i r e l y random. Because of this and because of the s m a l l sample s i z e , i t was suspected that the data was not n o r m a l l y d i s t r i b u t e d , another r e q u i r e m e n t of p a r a m e t r i c t e s t s . T o d i s c o v e r the shape of the data d i s t r i b u t i o n , c hi square g o o d n e s s - o f - f i t tests were run on the data to test f o r n o r m a l , b i n o m i a l , p o i s s o n , and negative b i n o m i a l d i s t r i b u t i o n s . The chi square tests were ap p l i e d to the m i c r o , m a c r o , and total s c o r e s plus the gallonage f i g u r e s f or both the m a j o r and independent st a t i o n s . Results r e v e a l e d that the data f a i l e d the test f o r n o r m a l i t y i n e v e r y instance and only o c c a s i o n a l l y did i t fi t other d i s t r i b u t i o n s . B ecause of the data's f a i l u r e to c o n s i s t e n t l y fi t any d i s t r i b u -tion a method of data t r a n s f o r m a t i o n was a l s o r u l e d out. The K o l m o g o r o v -S m i r n o v one-sample goodness-of-fit test was a l s o c o n s i d e r e d f o r testing data n o r m a l i t y . The K o l m o g o r o v - S m i r n o v test, however, i s even m ore pow e r f u l in d i s c r i m i n a t i n g d i s t r i b u t i o n s than the chi square test; thus i f the data f a i l e d the l a t t e r it would by de f i n i t i o n a l s o f a i l the f o r m e r . The c o n c l u s i o n r e a c h e d a f t e r examination of the data, was that n o n p a r a m e t r i c s t a t i s t i c s should be used. U n l i k e p a r a m e t r i c t e s t s , non-p a r a m e t r i c s do not s p e c i f y conditions about the p a r a m e t e r s of the population f r o m which the sample was drawn. S i e g e l (1956, pp. 32-33) outlines both the advantages and disadvantages of n o n p a r a m e t r i c s t a t i s t i c s . Some of the advantages a r e : 1) " P r o b a b i l i t y statements obtained f r o m most n o n p a r a -m e t r i c s t a t i s t i c a l tests a r e exact p r o b a b i l i t i e s (except in the case of l a r g e s a m p l e s , where excel l e n t approximations a r e a v a i l a b l e ) , r e g a r d l e s s of the ^ A l t h o u g h there was i n i t i a l h e s i t a n c y about employing a chi square test, because of the s m a l l n e s s of the s a m p l e s , consultation with D r . A. K o z a k of the U. B. C. Department of F o r e s t r y r e v e a l e d that the test was indeed p o w e r f u l enough to p r o p e r l y d i s c r i m i n a t e d i s t r i b u t i o n s even at the p r e s e n t sample s i z e . 96 shape of the population d i s t r i b u t i o n f r o m which the random sample was drawn" (p. 32); 2) F o r v e r y s m a l l sample s i z e s there is no al t e r n a t i v e to u s i n g n o n p a r a m e t r i c s t a t i s t i c a l tests unless the population d i s t r i b u t i o n is known exactly; 3) N o n p a r a m e t r i c tests a r e a v a i l a b l e f o r t r e a t i n g samples made up of observations f r o m s e v e r a l d i f f e r e n t populations. The assumptions of p a r a m e t r i c tests cannot handle such data. 4) Data that is by nature non-i n t e r v a l , o r d i n a l , or n o m i n a l can be handled by n o n p a r a m e t r i c s t a t i s t i c a l t e s t s . M o s t n o n p a r a m e t r i c tests r e q u i r e only o r d i n a l or ranked data. Some of the disadvantages a r e : 1) In c o m p a r i s o n to p a r a m e t r i c tests that meet a l l the data assumptions, n o n p a r a m e t r i c tests a r e wasteful of data. That is to say, the p o w e r - e f f i c i e n c y of n o n p a r a m e t r i c tests is not as high as f o r p a r a m e t r i c ones. A s S i e g e l (1956) r e c o r d s , however, this i s not always the case; i n fact, c e r t a i n n o n p a r a m e t r i c tests can be m o r e po w e r f u l than p a r a m e t r i c t e s t s , e.g. Mann-Whitney U test v e r s u s p a r a -m e t r i c t test (p. 126); 2) No n o n p a r a m e t r i c s t a t i s t i c a l method i s a v a i l a b l e f o r testing i n t e r a c t i o n s i n the a n a l y s i s of v a r i a n c e , unless s p e c i a l assump-tions a r e made co n c e r n i n g a d d i t i v i t y . T h i s aspect is of no consequence i n the p r e s e n t e x p e r i m e n t as a n a l y s i s of v a r i a n c e tests a r e not r e q u i r e d to p r o c e s s the data. The n o n p a r a m e t r i c s t a t i s t i c a l test u s e d most often i n the study is Spearman's rank c o r r e l a t i o n c o e f f i c i e n t , r s . It is u s e d h e r e as an a l t e r n a -tive test to the P e a r s o n product moment c o r r e l a t i o n c o e f f i c i e n t , r . A s was mentioned e a r l i e r Spearman's r s uses ranked data and is defined by the s t a t i s t i c : 9 7 r5 = 1 - 6 £ d ; 2 w N 3 - N h e r e r q = c o r r e l a t i o n c o e f f i c i e n t = s q u a r e d d i f f e r e n c e b e t w e e n r a n k s N = n u m b e r o f o b s e r v a t i o n s F o r t i e d o b s e r v a t i o n s , e a c h r a n k i s a s s i g n e d t h e a v e r a g e o f t h e r a n k w h i c h w o u l d h a v e b e e n a s s i g n e d h a d n o t i e s o c c u r r e d . " I f t h e p r o p o r -t i o n o f t i e s i s n o t l a r g e , t h e i r e f f e c t o n r g i s n e g l i g i b l e " ( S i e g e l , 1 9 5 6 , p . 2 0 6 ) . W h e n t h e p r o p o r t i o n o f t i e s i s l a r g e h o w e v e r , t h e f o l l o w i n g c o r r e c t i o n f o r m u l a m a y b e u s e d : I * 2 + S y 2 _ Z f l r s 2 y z x 2 i y 2 ; w h e r e 7 ,x 2 = N 3 - N - I L , l y 2 = N 3 - N - Y.T, 12 " 12 V a n d w h e r e _ 3 T = t 3 - t 12 t = n u m b e r o f o b s e r v a t i o n s t i e d a t a g i v e n r a n k T h e n o r m a l e f f e c t o f t i e d r a n k s i s t o i n f l a t e t h e v a l u e o f r s s o t h a t t h e a p p l i c a t i o n o f t h e t i e d r a n k s f o r m u l a w i l l t e n d t o r e d u c e t h e c o r r e l a t i o n c o e f f i c i e n t v a l u e . I n a l l t h e S p e a r m a n c o r r e l a t i o n s t h a t w e r e d o n e f o r t h i s s t u d y t h e m a x i m u m e f f e c t o f t i e d r a n k s o c c u r r e d i n t h e m a c r o s u b s c o r e s o f t h e s i t e r a t i n g i n s t r u m e n t . T h e u l t i m a t e e f f e c t o f t h e t i e d r a n k f o r m u l a w a s t o r e d u c e r s b y . 0 2 . I n n o i n s t a n c e d i d t h e c o r r e c t i o n f o r t i e d r a n k s i n f l u e n c e t h e s t a t i s t i c a l s i g n i f i c a n c e o f t h e c o r r e l a t i o n v a l u e s . 98 The p o w e r - e f f i c i e n c y of the Spearman rank c o r r e l a t i o n when co m p a r e d to the most powerful p a r a m e t r i c c o r r e l a t i o n , the P e a r s o n _r, is about 91 per cent (Siege l , 1956, p. 213). Kendall's rank c o r r e l a t i o n c o e f f i c i e n t , r (tau), was a l s o c o n s i d e r e d as a r e p l a c e m e n t f o r the P e a r s o n r . Although r is as p o w e r f u l as r s (both having an e f f i c i e n c y of 91 p e r cent), the K e n d a l l method is computationally m o r e time consuming, e s p e c i a l l y f o r N>10, than Spearman's s t a t i s t i c . E v e n though both methods ar e equally as p o w e r f u l i n r e j e c t i n g H Q , r and r s have d i f f e r e n t u n d e r l y i n g s c a l e s and n u m e r i c a l l y they a r e not d i r e c t l y c o m p a r a b l e to each other. T o use them both i n the same an a l y s i s would only confuse the r e a d e r who was unaccustomed to the comparable s c a l i n g of these two s t a t i s t i c s . G u i l f o r d (1965, p. 307) i n a d i s c u s s i o n of c o r r e l a t i o n s t a t i s t i c s says that r s is n u m e r i c a l l y c l o s e l y equivalent to the P e a r s o n _r. On the average r i s s l i g h t l y g r e a t e r than r s , the m a x i m u m di f f e r e n c e being a p p r o x i m a t e l y .02 when both a r e n e a r .50. Kendall's r , however, deviates much m o r e and cannot be c o n s i d e r e d d i r e c t l y comparable to the product moment c o r r e l a t i o n c o e f f i c i e n t or the rank c o r r e l a t i o n c o e f f i c i e n t . D e s c r i p t i o n of Data A h i s t o g r a m of y e a r l y station gallonages f o r both the m a j o r stations and the p r i c e - c u t t e r s i s shown in F i g u r e 9. F r e q u e n c i e s were ca l c u l a t e d f o r i n t e r v a l widths of 1 0 0 , 0 0 0 g a l l o n s . Although 83 per cent of the m a j o r stations and 45 p e r cent of the S t a t i o n Y e a r l y G a l l o n a g e s (000's o f ga l . ) F I G U R E 9 . H I S T O G R A M O F Y E A R L Y G A L L O N A G E S F O R A L L S T A T I O N S 1 0 0 i n d e p e n d e n t s t a t i o n s p u m p l e s s t h a n 3 0 0 , 0 0 0 g a l l o n s , t h e d i s t r i b u t i o n , o f g a l l o n a g e s i s f a r f r o m b e i n g n o r m a l . T h i s v i s u a l r e p r e s e n t a t i o n c o n f i r m s t h e f i n d i n g s i n t h e p r e v i o u s c h a p t e r . T h e s i t e r a t i n g s c o r e s f o r b o t h g r o u p s o f m a r k e t e r s w e r e a l s o p l o t t e d . T h e b a r g r a p h i n F i g u r e 1 0 s h o w s t h e m e a n m i c r o , m a c r o , a n d t o t a l s c o r e s f o r t h e i n d e p e n d e n t a n d m a j o r s t a t i o n s . I t c a p . b e s e e n t h a t t h e a v e r a g e m a j o r s t a t i o n s c o r e d a f u l l 11 p o i n t s m o r e i n t o t a l s c o r e t h a n i t s i n d e p e n d e n t c o u n t e r p a r t . T h i s d i f f e r e n c e i s d i r e c t l y a t t r i b u t a b l e t Q t h e h i g h e r m i c r o r a t i n g s r e c e i v e d b y t h e m a j o r c o m p a n y s t a t i o n s . T h e a v e r a g e d i f f e r e n c e i n m a c r o r a t i n g s a c c o u n t e d f o r o n l y 1 . 3 p o i n t s o f t h e e l e v e n p o i n t d i f f e r e n t i a l . I n g e n e r a l , i t c a n b e s e e n t h a t t h e m a j o r c o m p a n y s t a t i o n s r e c e i v e d h i g h e r r a t i n g s o n t h e m i c r o s c a l e t h a n t h e i n d e p e n d e n t s , w h i l e t h e m a c r o r a t i n g f o r b o t h g r o u p s r e m a i n e d r e l a t i v e l y e q u a l . I t w o u l d b e w e l l t o r e c a l l a t t h i s t i m e , t h a t t h e m i c r o v a r i a b l e s a r e d e s i g n e d t o m e a s u r e t h e g a l l o n a g e p e r f o r m a n c e o f a s t a t i o n . I n t e r m s o f g a l l o n a g e , t h e n , a h i g h m i c r o r a t i n g i n d i c a t e s a h i g h q u a l i t y s t a t i o n . T h e q u a l i t a t i v e d i f f e r -e n c e b e t w e e n s e r v i c e s t a t i o n s o c c u r s b e c a u s e o f d i f f e r e n c e s i n s u c h t h i n g s a s f a c i l i t i e s , l a y o u t , d e s i g n , v i s i b i l i t y , e t c . , i . e . I N S V f e a t u r e s ( s e e C h a p t e r 2 ) , I n t h e c a s e o f t h e i n d e p e n d e n t s , a l a c k o f f a c i l i t i e s a n d s e r v i c e d o e s n o t m e a n a l o s s o f g a l l o n a g e . A s i t h a s a l r e a d y b e e n s h o w n ( T a b l e 4 ) , t h e a v e r a g e p r i c e - c u t t e r p u m p s t w i c e a s m u c h g a s o l i n e as t h e a v e r a g e m a j o r . F I G U R E 1 0 . SITE R A T I N G S C O R E S F O R M A J O R A N D I N D E P E N D E N T S T A T I O N S 1 0 2 T o d i s c o v e r more about the nature of the raw data a s e r i e s of Mann-Whitney U t e s t s ( M - W U tests) were p e r f o r m e d . The M-W U test may be used to test whether two independent groups have been drawn f r o m the same population, " T h i s is one of the most powerful of the n o n p a r a m e t r i c te s t s , and is the most u s e f u l a l t e r n a t i v e to the p a r a m e t r i c t_ t e s t " (Siegel, 1 9 5 6 , p. 1 1 6 ) . The u s u a l n u l l hypothesis i s that A and B have the same d i s t r i b u t i o n , i . e . H Q : £ A = £ B ; while the al t e r n a t i v e hypothesis is that one group is s t o c h a s t i c a l l y l a r g e r than the other, i . e . H ^ : £ A > S B . The M-W U test is defined by the s t a t i s t i c : U = n ( n+ n,( n 2 +l) - R, 2 where n j = number of observations f o r the s m a l l e r group n£ = number of observations f o r the l a r g e r group K\ = sum of ranks a s s i g n e d to group whose sample s i z e is n^ F o r the M-W U test, the g e n e r a l rule is that n^ < xi^* When n£ > 2 0 , which is the case i n this experiment, the s a m p l i n g d i s t r i b u t i o n of U r a p i d l y approaches the n o r m a l d i s t r i b u t i o n with: Mean = nu = —•—— 2 and Standard deviation = <r0 = n, n2( n , + n 2 + I) The test f o r s i g n i f i c a n c e in the M-W U test may be d e t e r m i n e d by the s t a t i s t i c . .. ' z= u - M" When a. = . 0 5 is set as the s i g n i f i c a n c e l e v e l , H Q must be r e j e c t e d i f 103 values of Z a r e so extreme that t h e i r a s s o c i a t e d p r o b a b i l i t i e s are equal to or les s than .05. The M-W U test, l i k e the Spearman s t a t i s t i c , has a c o r r e c t i o n f o r t i e d r a n k s . Although the mean r e m a i n s the same, i . e . : 12 the standard deviation assumes the s t a t i s t i c , / / n i n 2 \ N 3-N~ - IT 2 where N = total observations i n the two groups (N = n^ + n2) I T = ( t 3 - t) 12 t = number of observations t i e d at a given rank E v e n when the p r o p o r t i o n of t i e d ranks is high, e.g. 90 per cent, the effect of ties is n e g l i g i b l e . S i e g e l (1956) recommends that "one should c o r r e c t f o r ties only i f the p r o p o r t i o n of ties is quite l a r g e , and i f some of the t's a r e l a r g e " (p. 126). Both the ti e d method and the non-tied method were used i n ana l y z i n g the data i n this study. The r e s u l t i n g p r o b a b i l i t i e s d i f f e r e d by no more than .004. The following r e p o r t e d values a r e f o r the tie d method. The Mann-Whitney U test's p o w e r - e f f i c i e n c y as c o m p a r e d to the 3 / most p o w e r f u l p a r a m e t r i c test of this type, the t_test, a p p r oach /TT = 95.5 p e r cent as N i n c r e a s e s . F o r moderate s i z e samples the power-e f f i c i e n c y is u s u a l l y 95 per cent. The M-W U test was applied to the data f o r the m a j o r and 1 0 4 independent stations to see i f the m i c r o , m a c r o , and total s c o r e s as w e l l as the gallonage f i g u r e s were drawn f r o m the same populations. A l t e r n a t i v e hypotheses were p r o p o s e d f o r each of the four tests on the basis of a p r i o r i u nderstanding of the data d i s t r i b u t i o n s . The f i r s t test was p e r f o r m e d on the y e a r l y gallonage f i g u r e s . The n u l l hypothesis was that the gallonage d i s t r i b u t i o n f o r the m a j o r s equa l l e d the gallonage d i s t r i b u t i o n f o r the independents ( H Q : £ M = £ I). T he al t e r n a t i v e hypothesis was that the gallonage d i s t r i b u t i o n f o r the m a j o r stations was s t o c h a s t i c a l l y s m a l l e r than the independents ( H ^ : £ M < F o r 9 p e r cent tied r a n k s , the Z s t a t i s t i c y i e l d e d a value of + 4 . 9 4 2 . T h i s r e p r e s e n t s a p r o b a b i l i t y of . 0 0 0 3 , t h e r e f o r e H Q must be r e j e c t e d . It can be concluded then, that the two groups of gallonage f i g u r e s were not drawn f r o m the same population and that independents' gallonages are s t o c h a s t i c a l l y l a r g e r than the m a j o r s ' gallonages. It should be noted that the Z value i n this test is p o s i t i v e . In the i n i t i a l M-W f o r m u l a f o r U , the value of R, r e p r e s e n t s the sum of the ranks f o r the s m a l l e r sample, i . e . the independents. Since the data i s ranked in descending o r d e r , s m a l l e r R j values r e p r e s e n t p r o p o r t i o n a t e l y higher gallonage f i g u r e s . Because R j is a minus value i n the U f o r m u l a , s m a l l e r values of R^ w i l l give l a r g e r values of U. If it happened that the gallonage f i g u r e s f o r the independent's were g e n e r a l l y lower than the m a j o r s , R j would be l a r g e r and would produce a s m a l l e r value of U . T h i s s m a l l e r value of U would i n turn be s m a l l e r than the mean, nu , and would r e s u l t in a negative value f o r Z . It can be seen, then, that a p o s i t i v e Z 105 value i n d i c a t e s the J; I is s t o c h a s t i c a l l y l a r g e r than £ M. The same test was p e r f o r m e d on the total site r a t i n g s c o r e s f o r the two groups of m a r k e t e r s . T h i s time the hypotheses were f o r m u l a t e d as follows: H 0 : £ M = £ 1 Hi: £ M > £1 With 28 p e r cent ties the r e s u l t s p r o d u c e d a 2 value of -1.756 and an a s s o c i a t e d p r o b a b i l i t y of .0392. A g a i n the n u l l hypothesis was r e j e c t e d with the c o n c l u s i o n that the two d i s t r i b u t i o n s were not drawn f r o m the same population and that the total s c o r e s f o r the m a j o r company stations were s t o c h a s t i c a l l y h i gher than the total s c o r e s f o r independent st a t i o n s . The M-W U test was a l s o applied to the m a c r o ratings to test the hypotheses that: H 0 : £ M = * I H1: £ M > £1 F o r 16 per cent tied ranks, the test p r o v i d e d a Z value of -.0497 and an a s s o c i a t e d p r o b a b i l i t y of .4801. In this case we must accept the n u l l hypothesis that the two d i s t r i b u t i o n s were drawn f r o m the same population. Although the Z value i s negative, i n d i c a t i n g h i g h e r m a c r o values f o r the m a j o r company stations, this d i f f e r e n c e is not s i g n i f i c a n t . The f i n a l M-W U t e s t was p e r f o r m e d on the m i c r o ratings to test the f ollowing hypotheses: 106 H 0 : KM = II H i : > $1 F o r 21 p e r cent tied ranks, the test p r o d u c e d a Z value of -2.057 and an a s s o c i a t e d p r o b a b i l i t y of .0195. Since H g is r e j e c t e d , i t must be concluded that the two di s t r i b u t i o n s were not drawn f r o m the same population and that the m i c r o ratings f o r the m a j o r stations a r e s t o c h a s t i -c a l l y l a r g e r than f o r the independent stations. The rank sum test (Hoel, 1967, p. 252) is v e r y s i m i l a r to the Mann-Whitney U test except f o r the fact that the sum is us e d d i r e c t l y in the c a l c u l a t i o n of the test of s i g n i f i c a n c e : Z = R i ~ M R where the standard deviation is the same as the U test, _ . / n, n 2 (n , + n 2 +1 f -J2 but where the means v a r i e s s l i g h t l y , 2 When the rank sum test was app l i e d to d i s c o v e r i f there were any di f f e r e n c e s between two groups of data, the r e s u l t s were exa c t l y the same as the U test except that they were a l l s i g n i f i c a n t at the .01 l e v e l , (Table 7). F r o m the r e s u l t s of the rank sum test and the Mann-Whitney U test, it can be seen that the m i c r o s c o r e s , the total s c o r e s , and the gallonage f i g u r e s of the m a j o r and independent stations were not drawn 107 T A B L E 7 V a l u e s of Z A s s o c i a t e d P r o b a b i l i t y , and R e j e c t i o n of H Q f o r Rank Sum T e s t A p p l i e d to M i c r o , M a c r o , T o t a l , and Gallonage Data Data Z P r o b a b i l i t y R e j e c t H Q Gallonage 2. 751 . 003 Y e s T o t a l -3.944 .0005 Y e s M a c r o -2.141 .0162 No M i c r o -4.248 .00003 Y e s f r o m the same population. The m a c r o s c o r e s t however, do come f r o m the same population. B e c a u se the independent stations operate under di f f e r e n t e c onomic r e s t r a i n t s than do the m a j o r company stat i o n s , i t was anti c i p a t e d that t h e i r gallonage f i g u r e s a r e s t o c h a s t i c a l l y l a r g e r than the average m a j o r company station. A s was mentioned p r e v i o u s l y , lower s e l l i n g p r i c e s , fewer T B A s a l e s , and l i t t l e b a c k r o o m work f o r c e s the independent stations to pump more gasoline just to r e m a i n i n b u s i n e s s . It is to be expected then, that the gallonage f i g u r e s f o r the two groups of m a r k e t e r s belong to two separate populations. A s was anticipated, the m i c r o s c o r e s f o r the m a j o r stations were s t o c h a s t i c a l l y higher than f o r the independent stations. T h i s o c c u r s because the m a j o r company stations concentrate on a c c e s s i b i l i t y , con-venience, and s e r v i c e i n o r d e r to att r a c t t h e i r c u s t o m e r s . The independent d e a l e r , on the other hand, uses p r i c e to att r a c t his m a r k e t segment and 108 tends to d i s r e g a r d the f u l l use of m i c r o f a c i l i t i e s . The outcome of this is that the m a j o r company stations r e c e i v e much h i g h e r m i c r o ratings than do the independents. The fact that the m i c r o ratings f o r the two groups of m a r k e t e r s come f r o m di f f e r e n t populations would s e e m to indicate that the quality r e q u i r e m e n t s f o r the m a j o r s and independents should be judged by di f f e r e n t c r i t e r i a . T h i s subject w i l l be broached m o r e f u l l y l a t e r i n this chapter. In g e n e r a l , the tota l s c o r e s follow the same pattern as the m i c r o s c o r e s . T h i s is expected since the tota l s c o r e s a r e p a r t i a l l y made up of the m i c r o s c o r e s . The effect of the m a c r o subtotal on the total s c o r e was to lower the value of the Z s t a t i s t i c only s l i g h t l y . The m a c r o subs c o r e s did not have a m o re pronounced mediating influence on the tota l s c o r e s because t h e i r v a r i a n c e was r e l a t i v e l y constant. Although the m a c r o subtotals f o r the m a j o r stations were s l i g h t l y h i g h e r than f o r the independent s t a t i o n s , the d i f f e r e n c e was not s i g n i f i c a n t . It can be concluded then, that a l l the stations i n the study were lo c a t e d i n roughly s i m i l a r s o c i o - e c o n o m i c a r e a s of the C i t y of V a n c o u v e r . I n t e r n a l C o n s i s t e n c y of Site Rating Schedule T o m e a s u r e the i n t e r n a l c o n s i s t e n c y of the eleven items used i n 13 the site r a t i n g schedule Cronbach's (1951) alpha was computed. A l p h a is defined by the s t a t i s t i c : i : S F o r Cronbach's alpha a p p l i e d to B r i c k ' s o r i g i n a l weightings see C l a u s , 1969, p. 47. 109 where n = number of parts (in this case the number of items i n the scale) V£ = v a r i a n c e of one i t e m of a test vj. = v a r i a n c e of tota l s c o r e The c o e f f i c i e n t a gives a lower bound on the r e l i a b i l i t y of a composite test having p a r a l l e l components. The alpha test can be u s e d on each subtest of a composite test. T h i s method i s j u s t i f i e d when the items within each s c a l e have been s e l e c t e d to m e a s u r e the same thing. Such is the case f o r the m i c r o and m a c r o subtests of the quality r a t i n g schedule. The five items i n the m i c r o subtest a r e designed to m e a s u r e si t e quality in t e r m s of gallonage p e r f o r m a n c e and the s i x items i n the m a c r o subtest a r e c o n c e r n e d with e conomic l i f e as a m e a s u r e of p e r f o r m a n c e . A p p l i c a t i o n of Cronbach's alpha y i e l d e d a v a l u e of .89 f o r the m i c r o subtotal and a vlue of .63 f o r the m a c r o subtotal. The c o e f f i c i e n t a f o r the m i c r o s c o r e s is c o n s i d e r e d to be v e r y high and i n d i c a t e s that the m i c r o subtest is v e r y homogeneous. The a value f o r the m a c r o s c o r e s is not as high and thus i n d i c a t e s a lower degree of homogeneity. Item V a l i d i t y T o test f o r i t e m v a l i d i t y Spearman's r s f o r t i e d ranks was c a l c u l a t e d between each of the eleven site r a t i n g v a r i a b l e s f o r a l l stations and the m i c r o , m a c r o , and tota l s c o r e s . T a b l e 8 r e v e a l s that, i n g e n e r a l the m i c r o v a r i a b l e s c o r r e l a t e h i g h l y with the m i c r o subtotals but show lit t l e s i g n i f i c a n t c o r r e l a t i o n with the m a c r o subtotals. The r e v e r s e pattern is a l s o o b s e r v e d with the m a c r o v a r i a b l e s which c o r r e l a t e highly with the m a c r o subtotals and p o o r l y with m i c r o subtotals. A s was 110 T A B L E 8 Spearman C o r r e l a t i o n s of the E l e v e n Site Rating V a r i a b l e s with the T h r e e Site Rating Scores F o r A l l Stations (N = 43) V a r i a b l e No. Site Rating Scale M i c r o M a c r o T o t a l M i c r o 1 . 81** .22 . 78-* V a r i a b l e s 2 . 80** . 19 . 77** 3 . 86*=:< . 30 .81** 4 . 78** . 13 . 68** 5 . 37* .09 . 34* M a c r o 6 . 18 . 77** . 38* V a r i a b l e s 7 .26 . 70** . 44** 8 . 32* . 59** . 38* 9 . 38* . 4 7 * * . 56** 10 .26 . 58** . 37* 11 .16 . 54=:* . 31* = p < .05 = p < .01 I l l expected, both sets of v a r i a b l e s are s i g n i f i c a n t l y i n c o r r e l a t i o n with the total s c o r e s . It can be concluded thus, that the s p l i t t i n g of the site r a ting schedule into m i c r o and m a c r o s u b s c a l e s , as done i n the C a l i f o r n i a study, is a l s o j u s t i f i e d i n the V a n c o u v e r market. The i t e m v a l i d i t y test demon-str a t e s that the m i c r o v a r i a b l e s m e a s u r e one aspect of p e r f o r m a n c e while the m a c r o v a r i a b l e s m e a s u r e another aspect of p e r f o r m a n c e . The fact that there is v e r y l i t t l e i n t e r c o r r e l a t i o n between these two groups shows that they a r e indeed m e a s u r i n g separate things. The same i t e m v a l i d i t y a n a l y s i s was done usi n g only m a j o r company stations (Table 9), and only independent stations (Table 10). The r e s u l t s indicate that the m i c r o / m a c r o s p l i t is a p p l i c a b l e even when the m a r k e t is segmented by d i f f e r e n t m a r k e t i n g s t r a t e g i e s . T h r e e Stage C o r r e l a t i o n a l A n a l y s i s T o investigate the r e l a t i o n s h i p between the site r a t i n g s c o r e s and gallonage, Spearman rank c o r r e l a t i o n c o e f f i c i e n t s were computed usi n g the three stage m o d e l of a n a l y s i s as p r e s e n t e d i n F i g u r e 6 of C h a p t e r 4. T a b l e 11 r e p o r t s the r e s u l t s of this a n a l y s i s . Stage 1: m a j o r company stations. It can be seen that while the m i c r o and t o t a l s c o r e s a r e s i g n i f i c a n t l y c o r r e l a t e d with gallonage, the m a c r o s c o r e s are not. It is suspected that the v e r y low value of r s f o r the m a c r o s c o r e s is due in p a r t to the s a m p l i n g p r o c e d u r e . It appears that the median gallonage stations f or the m a j o r companies u s e d i n the 112 T A B L E 9 Spearman C o r r e l a t i o n s of the E l e v e n Site Rating V a r i a b l e s with the T h r e e Site Rating S c o r e s F o r  M a j o r Stations (N = 23) V a r i a b l e No. Site M i c r o Rating Scale M a c r o T o t a l M i c r o 1 . 63** -. 19 . 58** V a r i a b l e s 2 . 58** -. 08 . 59** 3 . 78** .07 . 75** 4 . 61** -. 16 .42* 5 . 26 -. 07 . 19 M a c r o 6 . 14 . 73** .40* V a r i a b l e s 7 . 05 . 78** . 36* 8 -.004 . 60** .15 9 . 53* . 30 . 55* 10 . 31 . 43* .32 11 -. 16 . 70** . 06 = p < .05 = p < .01 113 T A B L E 10 Spearman C o r r e l a t i o n s of the E l e v e n Site Rating V a r i a b l e s with the T h r e e Site Rating S c o r e s F o r  Independent Stations (N = 20) V a r i a b l e No. Site M i c r o Rating Scale M a c r o T o t a l M i c r o 1 . 72** .26 . 69** V a r i a b l e s 2 . 84** . 15 . 73** 3 . 82** . 56** . 78** 4 . 64** .05 . 58** 5 . 60** .21 . 54** M a c r o 6 . 15 . 65** . 31 V a r i a b l e s 7 .23 . 56** . 34 8 . 53* . 58**. . DO'1"1 9 . 56*-!= . 58** . 67** 10 .46* . 79** . 58** 11 .28 . 31 .36 = p < .05 = p < .01 114 T A B L E 11 S p earman C o r r e l a t i o n s f o r M i c r o , M a c r o and T o t a l Site Rating Scores A g a i n s t Gallonage Site Rating S c o r e s M a j o r s (N=23) Independents (N«20) A l l Stations (N=43) M i c r o . 70=:* . 51* . 14 M a c r o .07 .65** .21 T o t a l .83** . 66** .25 * - p = < . 05 ** p = < .01 sample a r e l o c a t e d i n v e r y s i m i l a r s o c i o - e c o n o m i c areas of the c i t y . When the stations were rated, i t was noted that there was v e r y l i t t l e d i f f e r e n c e i n income, s o c i a l status, and development of the a r e a s s u r r o u n d -ing the m a j o r company sta t i o n s . T h i s homogeneity has o b v i o u s l y been r e f l e c t e d i n the m a c r o subs c o r e s . It can be seen that, f o r this sample, the only s i g n i f i c a n t d i f f e r e n c e among stations is i n the m i c r o r a t i n g s . In other words, stations r e c e i v i n g high m i c r o ratings because of f a c t o r s such as s u p e r i o r f a c i l i t i e s and a c c e s s i b i l i t y , have g e n e r a l l y h igher gallonage f i g u r e s . T h i s would seem to substantiate the b a s i c findings of the C a l i f o r n i a study. It a l s o shows that the m i c r o v a r i a b l e s do function as s u r r o g a t e m e a s u r e s of gallonage p e r f o r m a n c e . Since gallonage i s the only c r i t e r i o n m e a s u r e used i n the p r e s e n t study, it seems f r u i t l e s s to d i s c u s s the m a c r o v a r i a b l e s as i n d i c a t o r s of 115 s i t e quality. T h i s is because the m a c r o v a r i a b l e s were o r i g i n a l l y d esigned as s u r r o g a t e m e a s u r e s of the station's economic l i f e . The c o n c l u s i o n r e a c h e d i n Stage 1 is thus: i n t e r m s of gallonage p e r f o r m a n c e , the m i c r o v a r i a b l e s of the site r a t i n g i n s t r u m e n t a r e a v a l i d m e a s u r e of site quality f o r m a j o r company st a t i o n s . Stage 2: independent sta t i o n s . T a b l e 11 r e v e a l s that the t o t a l and m a c r o s c o r e s were more s i g n i f i c a n t l y c o r r e l a t e d with gallonage than the m i c r o s c o r e s . It appears i n this case that the m a c r o v a r i a b l e s a r e a better m e a s u r e of gallonage than ar e the m i c r o v a r i a b l e s . The f a i l u r e of the m i c r o v a r i a b l e s to adequately function as s u r r o g a t e m e a s u r e s of site q u a l i t y f o r independent stations was anticipated i n the r e s e a r c h hypothesis. A l t h o u g h it would appear that independent stations a r e of g e n e r a l l y lower quality and l a c k the f a c i l i t i e s and a c c e s s i b i l i t y enjoyed by m a j o r s t a t i o n s , i t does not n e c e s s a r i l y mean that they s e l l l e s s g a s o l i n e . In a c t u a l f a c t , independent d e a l e r s , on the average, pump more than twice as much gaso-line as do the median gallonage stations f o r the m a j o r companies. (See T a b l e 4 , C h a p t e r 4 .) The r e s u l t s a l s o indicate the p r i c e - c u t t e r ' s strong dependence on the s u r r o u n d i n g a r e a . B e c a u se the independent's s t r a t e g y is one of m a r k e t segmentation, the most s u c c e s s f u l stations a r e those located in a r e a s containing the highest p r o p o r t i o n of people l i k e l y to frequent that type of station. In g e n e r a l , the independent stations were found i n lower income a r e a s , on the edge of the C.B.D., or i n a s s o c i a t i o n with department s t o r e s or shopping c e n t e r s . The v a r i a n c e among the p r i c e - c u t t e r s i s 116 reflected by differences in the socio-economic environment of the individual stations as measured by the macro subs cores, whereas the variance in gallonage of the major companies is due largely to the facilities they offer as measured by the micro subscore. The conclusion reached in Stage 2 is: in terms of gallonage performance, the micro variables of the site rating instrument are not good measures of site quality for independent stations. Although it would appear that the independent stations are of a generally lower quality in terms of facilities and convenience than the major stations, it is s t i l l conceivable that the micro variables could be valid measures of site quality. This point is illustrated in Figure II, where both the major and independent stations have equal beta ( /3 ) coefficients for hypothetical least squares equations. In this case the least squares lines would be parallel, and for points of equal gallonage, the independent stations would have lower site rating scores. In actual fact, however, this situation does not exist. Figure 12 gives a scatter plot of both major and independent stations with their respective least squares lines. As can be seen, these lines are not paralle l . It must be concluded then, that for independent stations, some surrogate measure other than the micro subtotal should be used to measure site quality. It would appear that the gallonage performance of independent stations is based on cri t e r i a other than facilities and convenience. The SITE R A T I N G S C O R E S • F I G U R E 11. H Y P O T H E T I C A L L E A S T S Q U A R E S L I N E S 8TI 119 h i g h e r c o r r e l a t i o n values for the m a c r o and t o t a l s c o r e s would s e e m to suggest that a site r a t i n g i n s t r u m e n t based on v a r i a b l e s that m e a s u r e the s u r r o u n d i n g a r e a would be a l i k e l y s t a r t i n g point. It should be c l e a r at this point that independent stations are of d i f f e r e n t quality than the m a j o r company st a t i o n s . Stage 3: a l l stations. The r e s u l t s of the t h i r d stage of the a n a l y s i s m o d e l s t r o n g l y indicate that the site r a t i n g i n s t r u m e n t w i l l not work u n i v e r s a l l y when a l l stations a r e i n c l u d e d . T h i s r e i n f o r c e s the finding of the s e c o n d stage that i n o r d e r to p r e d i c t the p e r f o r m a n c e of gasoline s e r v i c e stations which employ a p r i c e - c u t t i n g strategy, a d i f f e r e n t m e a s u r e m e n t of site quality must be used. E v e n though m a j o r and independent stations p e r f o r m the same function, i . e . r e t a i l i n g g a s o l i n e , t h e i r l o c a t i o n a l and site quality r e q u i r e m e n t s in the u r b a n environment are quite d i s s i m i l a r . T h i s d i f f e r e n c e , i t is suggested, should be r e c o g n i z e d by a c a d e m i c s and p l a n n e r s , both of whom to date have l a r g e l y i g n o r e d such d i f f e r e n c e s i n t h e i r c o n s i d e r a t i o n of r e t a i l s i t e s . L e a s t Square A n a l y s i s In o r d e r to see how w e l l the independent v a r i a b l e s ( i . e . m i c r o , m a c r o , and total s c o r e s ) p r e d i c t e d gallonage a l e a s t squares a n a l y s i s was p e r f o r m e d on the data. The b a s i c method of l e a s t squares reduces to a p r o b l e m of fitting a s t r a i g h t line to a set of points. T h i s is a c h i e v e d by choosing any two e s t i m ates of a and /3 in the l i n e , Y = a + j3 X, as to m i n i m i z e the 1 2 0 s u m o f t h e s q u a r e s o f t h e e r r o r s : I (Y~ a - 3 x ) 2 w h e r e a a n d 0 a r e e s t i m a t o r s o f a a n d /? r e s p e c t i v e l y . " A b o u t 1 5 0 y e a r s a g o t h e s c i e n t i s t G a u s s s h o w e d t h a t e s t i m a t e s o b t a i n e d i n t h i s w a y a r e ( i ) u n b i a s e d , a n d ( i i ) h a v e t h e s m a l l e s t s t a n d a r d e r r o r s o f a n y u n b i a s e d e s t i m a t o r s t h a t a r e l i n e a r e x p a n s i o n s i n t h e Y ' s " ( S n e d i c o r & C o c h r a n , 1 9 6 7 , p . 1 4 7 ) . I m p o r t a n t t o n o t e , i s t h e f a c t t h a t G a u s s ' p r o o f d o e s n o t r e q u i r e t h e d a t a t o b e n o r m a l l y d i s t r i b u t e d . L i n d l e y ( 1 9 4 7 ) e m p h a s i z e s t h i s p o i n t b y s a y i n g t h a t " T h e m e t h o d o f l e a s t s q u a r e s r e q u i r e s n o a s s u m p t i o n s a b o u t t h e p r o b a b i l i t y d i s t r i b u t i o n s a s i t a p p l i e s t o a n y g r o u p o f o r d e r e d p a i r s o f o b s e r v a t i o n s " ( p . 2 4 1 ) . A l t h o u g h t h e d a t a i n t h e p r e s e n t s t u d y c a n n o t m e e t t h e a s s u m p t i o n o f n o r m a l i t y , i t i s s t i l l p e r m i s s i b l e t o a p p l y a l e a s t s q u a r e s a n a l y s i s . T h e e f f e c t i v e n e s s o f t h e l e a s t s q u a r e s l i n e i s m e a s u r e d b y t h e s t a n d a r d e r r o r o f e s t i m a t e f o r Y a s d e f i n e d i n t h e f o r m u l a : s.ys,'Y'-Y->i w h e r e Y = t h e a c t u a l v a l u e o f t h e d e p e n d e n t v a r i a b l e Y 1 = t h e p r e d i c t e d v a l u e o f t h e d e p e n d e n t v a r i a b l e n = n u m b e r o f o b s e r v a t i o n s ( H o e l , 1 9 6 6 , p . 2 1 8 ) T a b l e 1 2 r e p o r t s t h e r e s u l t s o f t h e l e a s t s q u a r e s a n a l y s i s i n t e r m s o f I g a l l o n s p e r m o n t h f o r m a j o r , i n d e p e n d e n t , a n d a l l s t a t i o n s . F i g u r e 1 3 s h o w s t h e s c a t t e r p l o t a n d l e a s t s q u a r e s l i n e s f o r b o t h t h e m a j o r a n d S c a t t e r P l o t o f M a j o r a n d I n d e p e n d e n t S t a t i o n s w i t h t h e i r R e s p e c t i v e L e a s t S q u a r e s L i n e s B a s e d o n T o t a l S c o r e s 2 , 0 0 0 - ! O M a j o r S t a t i o n s ( N = 2 3 ) • I n d e p e n d e n t S t a t i o n s ( N = 2 0 ) I a «^  o © o o s> c 1 , 0 0 0 . o "5 ° 8 0 0 J 52 6 0 0 -4 0 0 -2 0 0 . — T ~ 4 0 F I G U R E 1 3 . 1 5 0 T o t a l S i t e R a t i n g S c o r e 6 0 122 T A B L E 12 Standard E r r o r of E s t i m a t e f r o m L e a s t Squares A n a l y s i s T y pe of Station Standard E r r o r of E s t i m a t e (S e) a) M a j o r Companies (N = 23) M i c r o 3, 700 M a c r o 5,800 T o t a l 1,900 b) Independent Stations (N = 20) M i c r o 37, 300 M a c r o 27,300 T o t a l 32,500 c) A l l Stations (N = 43) M i c r o 31,000 M a c r o 25,200 T o t a l 30,700 independent stations. A c c o r d i n g to the Spearman c o r r e l a t i o n s the total site r a t i n g s c o r e f o r both groups of m a r k e t e r s should be the best p r e d i c t o r of gallonage. B y u s i n g t o t a l site r a ting s c o r e as the independent v a r i a b l e , the lea s t squares m o d e l could p r e d i c t the gallonage of the m a j o r i t y of m a j o r company stations to within 1,900 gallons p e r month. In t e r m s of average monthly gallonage per station this r e p r e s e n t s an e r r o r of l e s s than 10 p e r cent. D i s c u s s i o n with o i l company o f f i c i a l s r e v e a l e d that this e r r o r i n p r e d i c t i o n is w e l l within the l i m i t s used by o i l companies themselves i n p r e d i c t i n g the gallonage of a s e r v i c e station s i t e . It appears once again that the site r a t i n g i n s t r u m e n t is indeed a v a l i d m e a s u r e of site quality. 123 Although the r e s u l t s f o r the independent stations r e v e a l the fact that the m a c r o v a r i a b l e s are the best p r e d i c t o r s of gallonage, c a l c u l a t i o n of the e r r o r i n t e r m s of average monthly gallonage r e v e a l e d an e r r o r of 73 per cent. T h i s would seem to indicate that the v a r i a b l e s i n the l e a s t squares m o d e l are not good p r e d i c t o r s of gallonage f o r independent stations. C a l c u l a t i o n of percentage e r r o r f o r a l l stations (again u s i n g the m a c r o v a r i a b l e s ) p roduced an e r r o r of 80 per cent. T h i s r e s u l t was not unexpected and c o n f i r m s the finding of the three stage c o r r e l a t i o n a n a l y s i s that the i n s t r u m e n t cannot function u n i v e r s a l l y f o r stations employing dif f e r e n t m a r k e t i n g s t r a t e g i e s . P a r a m e t r i c C o r r e l a t i o n A n a l y s i s A p a r a m e t r i c c o r r e l a t i o n a n a l y s i s v e r y s i m i l a r to the p r e c e d i n g n o n p a r a m e t r i c a n a l y s i s was a l s o p e r f o r m e d on the data. The author i s w e l l aware of the l i m i t i n g assumptions r e g a r d i n g such s t a t i s t i c a l tests and presents the r e s u l t s of the p a r a m e t r i c a n a l y s i s only as an i n t e r e s t i n g c o m p a r i s o n . No conclusions or i n f e r e n c e s are being drawn f r o m the following a n a l y s i s . The c o r r e l a t i o n s t a t i s t i c u sed i n the following tests was the f a m i l i a r P e a r s o n r. T a b l e s 13, 14, and 15 p r e s e n t the c o r r e l a t i o n c o e f f i c i e n t s of the eleven site r a ting v a r i a b l e s with the three site r a t i n g s c o r e s f o r the m a j o r companies, f o r the p r i c e - c u t t e r , and f o r a l l stations. T a b l e 16 conveys the r e s u l t s of the P e a r s o n c o r r e l a t i o n s between site rating s c o r e s and gallonage. 124 T A B L E 13 P e a r s o n C o r r e l a t i o n s of the E l e v e n Site Rating V a r i a b l e s with the T h r e e Site Rating S c o r e s F o r M a j o r Companies (N = 23) V a r i a b l e No. Site T o t a l Rating Scale M i c r o M a c r o M i c r o 1 . 60** . 76** -.40 V a r i a b l e s 2 . 57** .67** -. 31 3 . 75** . 7 4 * * -.09 4 . 31 .44* -.05 5 .04 . 18 -.24 M a c r o 6 . 31 -. 14 . 76** V a r i a b l e s 7 .25 -. 17 . 76** 8 -. 10 -.44* . 60** 9 . 34 .35 . 02 10 -. 13 -.002 . 13 11 .07 -.29 . 63** = p < .05 = p < . 01 125 T A B L E 14 P e a r s o n C o r r e l a t i o n s of the E l e v e n Site Rating V a r i a b l e s with the T h r e e Site Rating S c o r e s F o r P r i c e -C u t t e r s (N = 20) V a r i a b l e No. Site Rating Scale T o t a l M i c r o M a c r o M i c r o 1 . 77** .81** .16 V a r i a b l e s 2 . 89** . 92** . 14 3 .81** .83** .20 4 . 56** . 66** -.08 5 . 52* . 53* . 13 M a c r o 6 .28 . 05 .80** V a r i a b l e s 7 .20 . 02 . 80** 8 .25 . 18 .27 9 . 56** . .23 „ 79** 10 . 49* .24 . 74** 11 . 15 . 11 . 35 p < .05 p < . 01 126 T A B L E 15 P e a r s o n C o r r e l a t i o n s of the E l e v e n Site Rating V a r i a b l e s with the T h r e e Site Rating S c o r e s F o r A l l Stations (N = 43) V a r i a b l e No. Site T o t a l Rating Scale M i c r o M a c r o . M i c r o 1 . 80** .85** . 07 V a r i a b l e s 2 . 83** . 87** .11 3 . 84** .85** . 18 4 .71** . 76** .11 5 . 34* . 38** -. 02 M a c r o 6 . 43** .11 . 78** V a r i a b l e s 7 . 33* .13 . 70** 8 . 13 .01 .44** 9 . 53** .17 . 53** 10 .45** . 01 . 52** 11 . 31* . 05 . 47** = p < .05 = p < .01 127 T A B L E 16 P e a r s o n C o r r e l a t i o n s Between Site Rating S c o r e s and Gallonage Site Rating M a j o r s Independents A l l Stations S c o r e s (N = 23) (N = 20) (N = 43) M i c r o . 74** .40 -.01 M a c r o -. 02 . 76** .45** T o t a l . 82** . 64** . 15 * = p < .05 ** = p < .01 A s can be e a s i l y seen, the r e s u l t s of the p a r a m e t r i c c o r r e l a t i o n s a r e e x t r e m e l y s i m i l a r to the n o n p a r a m e t r i c c o r r e l a t i o n s . A S m a l l C a s e Study In the course of ra t i n g the stations s e l e c t e d for the p r e s e n t study, the author became aware of an i n t e r e s t i n g s i t u a t i o n . Although the m a j o r company stations were chosen at random f r o m a p r e p a r e d l i s t , it o c c u r r e d that three stations i n the study were l e s s than two blocks f r o m each other. F i g u r e 14 i l l u s t r a t e s t h e i r r e l a t i v e s t r e e t l o c a t i o n s . Station A and C were m a j o r company stations belonging to competitive f i r m s , while Station B operated as a p r i c e - c u t t e r s e l l i n g gaso-line at 4£ l e s s p e r gall o n than the other two. A l l stations were on m a j o r city a r t e r i e s with Station C having the highest t r a f f i c count. T a b l e 17 presents the pertinent data on a l l three stations. It can be seen that the m a j o r company stations (A and C) pump v e r y s i m i l a r F I G U R E 14 . R e l a t i v e S t r e e t L o c a t i o n o f T h r e e S t a t i o n s i n S m a l l C a s e S t u d y T A B L E 17 Gallonage and Site Rating Data f or T h r e e Stations i n the C a s e Study Station Y e a r l y Gallonage T o t a l Site Rating Score P r e d i c t e d Gallonage F r o m L e a s t Squares A n a l y s i s Ratio of Gallons P e r Unit Score D i f f e r e n c e A 233,835 60 237,890 3,897 , ^ 436 (A-C) C 273,000 63 265,140 4, 333 ^4,757 (C-B) B 500,000 55 786,360 9 , 0 9 0 ^ " ^ 130 volumes while the p r i c e - c u t t e r pumps twice as much gasoline as the other two. The site r a ting s c o r e s f o r stations A and C are a l s o v e r y s i m i l a r . The p r i c e - c u t t e r ' s s c o r e , however, is a f u l l five points lower. When rat i o s of gallonage per unit s c o r e ( i . e . total gallonage d i v i d e d by total s c o r e) are c a l c u l a t e d the m a j o r stations are again v e r y c l o s e , t h e i r d i f f e r e n c e being only 436 ga l l o n s / u n i t s c o r e . In t e r m s of monthly gallonage this r e p r e s e n t s a fig u r e of 36 gallonages/unit s c o r e . It would appear, again, that f o r m a j o r company stations, the site r a t i n g i n s t r u m e n t i s v e r y . u n i f o r m and a c c u r a t e . The p r e d i c t e d gallonages f o r the i n d i v i d u a l s t a t i o n s , i n this i n s t a n c e , are s u r p r i s i n g l y c l o s e to the a c t u a l f i g u r e s given by the r e s p e c t i v e companies. The p r i c e - c u t t e r , on the other hand, shows a gallon/unit s c o r e of 9090, more than twice that of the m a j o r sta t i o n s . It seems c l e a r i n this l i m i t e d case, that given equal f a c i l i t i e s and l o c a t i o n a l advantage, the p r i c e - c u t t e r can pump more than twice as much gasoline as the m a j o r company stations. T h i s is a c c o m p l i s h e d by adopting a s t r a t e g y of cutting p r i c e by 4£ per ga l l o n . Although this case study is a l i m i t e d instance i t does s e r v e to demonstrate the d r a m a t i c effects on the landscape that a change in m a r k e t i n g s t r a t e g y can c r e a t e . It a l s o demonstrates that a shift i n st r a t e g y changes the qualitative nature of the i n d i v i d u a l s i t e . C H A P T E R 5 C O N C L U S I O N S A N D I M P L I C A T I O N S The site r a t i n g i n s t r u m e n t was demonstrated to be a v a l i d m e a s u r e of site quality f o r m a j o r company sta t i o n s . V e r i f i c a t i o n was p e r f o r m e d by the Spearman a n a l y s i s , the l e a s t squares a n a l y s i s of the sample of stations, and the s m a l l case study. F o r the m a j o r i t y of m a j o r stations i n the study, gallonage could be p r e d i c t e d within a standard e r r o r of 1 , 9 0 0 gallons p e r month. The r e s u l t s of this p a r t of the r e s e a r c h c o n f i r m the findings of C l a u s ' e x p e r i m e n t with s e r v i c e stations i n C a l i f o r n i a . In c o n t r a s t , the site r a t i n g i n s t r u m e n t as a m e a s u r e of quality f o r the independent stations showed a s e r i o u s weakness i n its a b i l i t y to p r e d i c t gallonage. The site r a t i n g s c o r e that p r o d u c e d the highest c o r r e l a t i o n with gallonage was the m a c r o subtotal, i . e . those v a r i a b l e s c o n c e r n e d with the s o c i o - e c o n o m i c environment s u r r o u n d i n g the station. D i f f e r e n c e s i n the m i c r o v a r i a b l e s (design and layout) had v e r y low c o r r e l a t i o n s with gallonage. It was a l s o shown that the m a c r o s c o r e s f o r both the m a j o r and independent stations were drawn f r o m the same s t a t i s t i c a l population. A s anticipated, the p r i c e - c u t t e r s had g e n e r a l l y 132 lower quality stations (in terms of the rating instrument) but they in v a r i a b l y pumped more gasoline (on equivalent ratings) than the major stations. The most evident factor to explain this gallonage discrepancy is the different marketing strategies: price-cutting versus time and con-venience. It must be concluded that the quality requirements for a major station and an independent station are not comparable on the same basis. This lack of direct comparison was also demonstrated in the s e r i e s of Mann-Whitney U tests which showed the gallonages, m i c r o s c o r e s , and total scores to be from two different s t a t i s t i c a l populations. D i r e c t comparisons also failed in Stage 3 of the Spearman c o r r e l a t i o n analysis and i n the least squares analysis. F r o m the results it can be concluded that the requirements for building and locating a high quality site for a p r i c e - c u t t e r are much different than the requirements demanded by a major company in building and locating a high quality s i t e . If this is true, then we must accept the o r i g i n a l r e s e a r c h hypothesis that different marketing strategies can cause differences i n site quality. It follows from the hypothesis that in order to make the best use of any p a r t i c u l a r location, a company should choose the appropriate marketing strategy and build the site accordingly. Companies not only influence the landscape in this way, but in turn, the landscape creates changes in company policy. As was i l l u s t r a t e d in Chapter 3, companies are acutely aware of environmental changes and are usually quick to react. In the case of s e r v i c e stations, for example, a change in the road 133 network or population strategy may nec e s s i t a t e a shift i n st r a t e g y . A de c l i n i n g neighborhood station may sometimes make an i d e a l p r i c e - c u t t e r . T h i s study has i m p l i c a t i o n s f o r c i t y p l a n n e r s . In o r d e r to make the most e f f i c i e n t use of urban space d i f f e r e n c e s i n site quality should be taken into account. Making either the p r i c e - c u t t e r or the m a j o r company adhere to a single set of c r i t e r i a w i l l create an i n e f f i c i e n t and inequitable s y s t e m ; i n e f f i c i e n t i n the sense that the consumer w i l l pay m o r e f o r his gasoline; and inequitable in that it gives one competitor undue advantage over another. A n y dise c o n o m i e s c r e a t e d by an inadequate s y s t e m w i l l l i k e l y be p a s s e d onto the consumer i n the f o r m of i n c r e a s e d p r i c e s . V a n c o u v e r has such r e s t r i c t i v e zoning on s e r v i c e s t a t i o n s . In 1968, drawing upon Judge Morrow's findings that there were too many s e r v i c e stations i n B r i t i s h C o l u m b i a , V a n c o u v e r C i t y C o u n c i l e mbarked on a conscious p o l i c y of l i m i t i n g the number of s e r v i c e stations being built i n V a n c o u v e r . A two-part study into the l o c a t i o n and quality of s e r v i c e stations was launched by C o u n c i l i n O c t o b e r of 1968 (Cit y of V a n c o u v e r P l a n n i n g Department, 1968, 1969). The e s s e n t i a l recommendations of the P l a n n i n g B o a r d that p e r f o r m e d the studies were ac t i v a t e d under By-law No. 4423 in A p r i l 1969* vesting the f i n a l d e c i s i o n on the building of any s e r v i c e station i n V a n c o u v e r with C i t y C o u n c i l . In other words, J-Based on the A m e r i c a n Society of P l a n n i n g O f f i c i a l s ( A . S. P.O. ) Inform a t i o n Report No. 140 the By-law allows s e r v i c e stations to locate " c o n d i t i o n a l l y " i n C - l , C-2, and C-3 zones. 134 a l l a p p l i c a t i o n s for new s e r v i c e station sites are p r e s e n t e d before C o u n c i l at an open h e a r i n g . The o r i g i n a l intention of C o u n c i l was to l i m i t the to t a l number of s e r v i c e stations. However, Council's efforts have had just the opposite effect. Although the gasoline s e r v i c e station i n d u s t r y i n N o r t h A m e r i c a had seen a m a r k e d decline i n the r e l a t i v e number of s e r v i c e stations as w e l l as an absolute decline i n some a r e a s , a f t e r C i t y C o u n c i l i n i t i a t e d its plan i n 1968, the number of outlets i n V a n c o u v e r has si n c e r e m a i n e d a l m o s t constant. Since 1957, f o r example, I m p e r i a l O i l r e d u c e d its number of stations i n B r i t i s h C o l u m b i a by 85 (or 13 p e r cent), while the motor v e h i c l e population i n c r e a s e d by 74 per cent ( I m p e r i a l O i l , 1967, p. 9). In the y e a r s between 1962 and 1967 the C i t y of V a n c o u v e r e x p e r i e n c e d a decline i n the number of s e r v i c e stations f r o m 376 to 340 (or 9.57 p e r cent). Since 1967, when the M o r r o w C o m m i s s i o n R e p o r t a ppeared and C i t y C o u n c i l launched its campaign against s e r v i c e s t a t i o n s , the absolute number of outlets has r e m a i n e d r e l a t i v e l y constant, i . e . 342 in 1970. Although the slow down i n the decline of stations could be attributable to the entry of s e v e r a l new c o m p e t i t o r s , plus the r i s i n g employment i n c e n t r a l V a n c o u v e r , d i s c u s s i o n with o i l company r e p r e s e n t a -tives indicates that C o u n c i l is r e s p o n s i b l e f o r preventing the n a t u r a l t r e n d of events. S e v e r a l o i l companies themselves have i n d i c a t e d that they wish 135 to reduce t h e i r total number of stations, but a r e prevented i n doing so mor r a p i d l y by the p resent si t u a t i o n . E l s e w h e r e in N o r t h A m e r i c a , companies are s e l l i n g off station p r o p e r t y , while consolidating t h e i r m a r k e t into fewer but bigger stations. The b a s i c p r o c e s s is one of e l i m i n a t i n g two or three s m a l l stations in p o o r e r locations and building one l a r g e station that is w e l l located. In this way they may s t i l l m a i n t a i n t h e i r m a r k e t share while reducing the total number of stations. The p r o c e s s a l s o makes ad d i t i o n a l land a v a i l a b l e f o r other f o r m s of land use. In V a ncouver, however, the o i l companies are not allowed to build stations where they would l i k e . Often it is d i f f i c u l t to get a station built i n a l o c a t i o n that is a l r e a d y p r o p e r l y zoned. Because the companies cannot r i s k giving up two or three stations before a new one (or an i m p r o v e d one) is built, they tend to hold on to t h e i r p r e s e n t s i t e s . Many companies would like to turn old, outdated, and unprofitable stations to other f o r m s of land use but a r e prevented in doing so by the f e a r of l o s i n g a p o r t i o n of t h e i r m a r k e t s h a r e . If a company e l i m i n a t e s a station without r e p l a c i n g i t , a l l its other stations must s e l l m ore gasoline to make up f o r this l o s s . G e n e r a l l y , a l l companies must achieve a r e q u i r e d rate of r e t u r n on t h e i r investment. In a m a r k e t where continued response to a changing environment cannot be maintained the company has two c h o i c e s : 1) r a i s e the p r i c e of the product, and 2) lower the c a p i t a l investment. E i t h e r choice is u n b e n e f i c i a l to the p u b l i c . 136 A n e x c e l l e n t example of s e r v i c e station c o n s o l i d a t i o n o c c u r r e d i n Richmond, B r i t i s h C o l u m b i a , where Gulf a g r e e d to cl o s e down three of its f a c i l i t i e s i f it could b u i l d one to r e p l a c e i t . G u l f was so s u c c e s s f u l in its choice of l o c a t i o n and f a c i l i t i e s that the single l o c a t i o n is now pumping more gasoline than the other three did combined. The M u n i c i p a l i t y of R i c h m o n d a l s o benefited by r e c e i v i n g m o re c o m m e r c i a l space plus a v e r y s u c c e s s f u l business e n t e r p r i s e . A lthough p r i c e cutters w i l l always be i n the m a r k e t p l a c e , i t i s uncommon f o r them to c o n t r o l m o re than 10 per cent of the m a r k e t . In V a n c o u v e r , however, p r i c e - c u t t e r s account for 15.61 per cent of the volume s a l e s , but only 5.88 per cent of the number of stations. The r e a s o n f o r this uncommon d i s c r e p a n c y appears to stem in p a r t f r o m the fact that m a j o r companies are h i n d e r e d i n t h e i r n o r m a l f o r m of competition by the l o c a l zoning r e s t r i c t i o n s as w e l l as the p r e v i o u s l y mentioned r e f i n e r y c o m p l i c a t i o n s (Chapter 4). It appears that a slow down of the g e n e r a l m a r k e t t r e n d has contributed i n some extent to the growth of p r i c e - c u t t e r s i n the V a n c o u v e r market. If s u f f i c i e n t s e r v i c e and convenience cannot be o f f e r e d by the m a j o r companies, people w i l l "tend" to buy gasoline f r o m the cheapest s e l l e r . B ecause the p r i c e - c u t t e r does not need good f a c i l i t i e s , he can a f f o r d to p urchase a m o re i n a c c e s s i b l e and l e s s v i s i b l e site and s t i l l make ^Interview with M r . Ray P o c h m a r a Gul f O i l r e p r e s e n t a t i v e (1970). 137 a p r o f i t . With m o r e people buying f r o m p r i c e - c u t t e r s , the m a j o r s t a t i o n s , which are not r e a l l y convenient or which cannot offer f u l l s e r v i c e , w i l l go out of business or w i l l be poor b u s i n e s s e s . The ci t y again s u f f e r s because of poor business e n t e r p r i s e s , vacant l o t s , and shoddy bui l d i n g s . Since the m a j o r companies supply the bulk of gasoline to the independents, the cost of such d i s e c o n o m i e s a r e again p a s s e d onto the consumer, and the ci t y is stuck with r e l a t i v e l y u n s i g h t l y and i l l equipped p r i c e - c u t t e r s t a t i o n s . B e c a u s e p r i c e - c u t t e r s u s u a l l y locate on l e s s d e s i r a b l e s i t e s , the taxes are g e n e r a l l y lower on these l o t s , so the c i t y again l o s e s . A lthough zoning and by-laws a r e intended to f u r t h e r the "public g o o d , " they can i n some instances o b s t r u c t the 'public good." The r e a s o n f o r this is u s u a l l y attributed to e n v i r o n m e n t a l changes or lack of i n f o r m a t i o n . In this p art of the twentieth century with an i n c r e a s i n g p a u c i t y of land and changing technology, the best c o u r s e of action is to r a i s e the entire i n f o r -m a t i o n a l l e v e l of the m a r k e t place and m u n i c i p a l d e c i s i o n - m a k e r s to a point that allows some degree of enlightened c o m p r o m i s e . T h i s thesis has been designed to convey some s m a l l bit of new knowledge co n c e r n i n g u r b a n r e t a i l s i t e ; n a m e l y that the r e q u i r e m e n t s f o r an ef f i c i e n t and viable r e t a i l site a r e to some extent dependent on the type of m a r k e t i n g st r a t e g y that i s use d i n s e l l i n g the product. A s m a r k e t i n g s t r a t e g i e s v a r y so w i l l the quality of site v a r y . T h i s aspect is important to both c o r p o r a t i o n s and ci t i e s who want to m a x i m i z e urb a n space. B I B L I O G R A P H Y A l d e r , L. (Ed.) 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M a j o r C o m p a n y 4 3 2 4 6 7 3 5 0 , 0 0 0 S t a t i o n s 3 6 2 9 6 5 3 0 0 , 0 0 0 3 4 2 8 6 2 3 0 0 , 0 0 0 3 3 2 4 5 7 2 8 0 , 0 0 0 3 5 2 6 6 1 2 6 0 , 0 0 0 2 7 3 0 5 7 2 2 0 , 0 0 0 4 1 2 5 6 6 3 2 4 , 0 0 0 3 2 2 7 5 9 2 7 2 , 0 0 0 3 3 2 4 5 7 2 3 6 , 0 0 0 3 5 2 6 5 1 1 7 9 , 0 0 0 3 3 2 4 5 7 1 6 2 , 0 0 0 2 8 2 8 5 6 1 5 7 , 0 0 0 3 4 2 8 6 2 2 7 9 , 0 0 0 3 3 2 9 6 2 2 5 4 , 9 0 0 3 3 2 4 5 7 2 4 6 , 4 0 0 3 4 2 6 6 0 2 0 3 , 8 0 0 2 7 3 1 5 8 1 9 2 , 0 0 0 3 3 2 6 5 9 1 6 5 , 8 0 0 2 6 2 9 5 5 1 6 0 , 5 0 0 3 3 2 4 5 7 1 4 9 , 6 0 0 2 7 2 7 5 4 1 4 9 , 2 0 0 2 7 2 6 5 3 1 4 6 , 4 0 0 2 9 2 4 5 3 1 4 3 , 3 0 0 B . 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